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The borrower's curse: optimism, finance and entrepreneurship

de Meza, David and Southey, Clive (1996) The borrower's curse: optimism, finance and entrepreneurship. Economic Journal, 106 (435). pp. 375-386. ISSN 0013-0133

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Abstract

This paper argues that most of the facts characterising small-scale businesses, including high failure rates, reliance on bank credit rather than equity finance, relatively low interest rate margins, and credit rationing, can be explained by a tendency for those who are excessively optimistic to dominate new entrants. Drawing on findings in psychology, we model entrants as relatively naïve optimisers. Banks on the other hand are viewed as well informed and efficient processors of information.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journal.asp?ref...
Additional Information: © 1996 Royal Economic Society
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Management
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 09 May 2011 13:16
URL: http://eprints.lse.ac.uk/35835/

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