Small and medium-sized enterprises and their bank relationships – The roll of trust & facts
Second wave of data collection
The successful development of small and medium-sized enterprises (SMEs) requires access to debt capital, as innovation projects first need resources and only later potentially contribute to the financial resource base of the firm. For SMEs, banks play a fundamental role in providing debt finance. Due to changes in the regulatory framework decisions on credit volume and terms of credit are increasingly taken on the basis of hard facts (e.g. financial ratios). At the same time, the quality of the loan manager’s relationship with the management of an SME (soft facts) and especially the trust which exists in this relationship, lose importance.
For banks, lending decisions taken on the basis of hard facts are problematic, especially with regard to SMEs. This is because SMEs often cannot provide adequate information and their dynamic development reduces the informational value of retrospective financial ratios regarding their future development. SME managers/owners, in turn, perceive the banks’ transaction-oriented decision processes as artificial obstacle and complain about a credit crunch.
To date, the public discourse is rather based on opinions than empirical evidence. Informed recommendations for action can only be formulated, if the role of hard facts, relationship quality and trust in bank lending decisions are understood. Andrea Moro, Daniela Maresch and Matthias Fink shed light on the SME-bank relationship by surveying banks about their SME clients. They investigated the relative importance of hard facts (financial ratios), soft facts (quality of the relationship between the loan manager and the SME manager/owner) and trust (loan manager’s trust in the SME manager/owner) for the loan manager’s decision on the credit volume and the terms of credit for SMEs.
In 2016, six master students approached SMEs and interviewed SME managers/owners about their perception of the relationship with their main bank. This research initiative provided us with a clear picture of the relationship from the SME managers’/owners’ point of view. In order to establish causalities as to how the relationship quality impacts on the amount of credit, interest rates etc. we will collect a second wave of data from the respondents of the first wave. We will approach them with a short questionnaire that is conducted either in personal meetings or via telephone.
Your master thesis will contribute to this research initiative. You will be equipped with a short validated questionnaire in German language. With this questionnaire you will approach SME-managers/owners who participated in the first wave of data collection during 2015. You will try to get as many responses as possible from a list of 80 contacts provided. This data collection will be done by 3-5 master students in parallel. For your thesis, you will focus on a specific aspect of the total project. Thus, you will be able to base your analysis on the total sample, to which each of you will contribute. That way, a series of individual theses will emerge each of which is based on a rich empirical basis.
To apply for this research initiative, please send your CV with the reference “MA SME&Bank Relationship Wave 2” to matthias.fink@jku.at until 28th October 2016.
Key contributions that we have published on similar topics:
- Moro, A., Fink, M. & Maresch, D. (2015): Reduction of Information Asymmetry and Credit Access for Small and Medium Sized Entreprises. Journal of Financial Research DOI: 10.1111/jfir.12054.
- Moro, A., Fink, M. & Kautonen, T. (2013): How do banks assess entrepreneurial competence? The role of voluntary information disclosure. International Small Business Journal (ISBJ) DOI: 10:1177/0266-242612458.
- Moro, A. & Fink, M. (2012): Loan managers’ trust and credit access for SMEs. Journal of Banking and Finance DOI: 10.1016/j.jbankfin.2012.10.023.