Decision making by Scottish bank managers

Abstract

Commercial banks are the major source of external finance for small firms in the UK. Describes a study which was carried out to investigate how bank managers make decisions on lending to small firms. The study looked at adverse selection (i.e. where a manager turns down a good proposal which turns out to be a success) and its effect on small firm liquidity constraints. The researcher took on the role of an entrepreneur and presented a business plan based on an actual lending proposition to bank managers in Scotland. Compares the study with an English study. Findings suggest a more favourable treatment of the proposition by the Scottish bank managers. However, there was variation among banks in the way managers assessed the proposition. There was an emphasis on financial information, gearing and security which reflects the capital‐based approach to bank risk assessment in the UK. Considers policy implications for risk assessment and small firms/banking relationships.

Citation

Fletcher, M. (1995), "Decision making by Scottish bank managers", International Journal of Entrepreneurial Behavior & Research, Vol. 1 No. 2, pp. 37-53. https://doi.org/10.1108/13552559510090613