Role of trust in bank-SME relationships
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School of Business |
Master's thesis
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en
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38 + 2
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Abstract
According to Degryse and Cayseele (2000) small businesses often complain about being unable to get money from banks at affordable rates. They argue, that borrowers can mitigate the problem by building a strong relationship with the lender. Having access to sufficient debt financing is crucial for small and medium sized enterprises (SMEs). However, evaluating the creditworthiness of SMEs is a challenge for banks, because the availability of public information is much lesser than in case of larger corporations and with enterprises, that have a long history. Previous studies argue, that in addition to the (mandatory) hard data, banks should utilize private information such as growth estimates, immaterial rights and innovations. However, the SMEs often think that this kind of information is sensitive, and they do not want it to end up in the wrong hands. Because of trust issues the SMEs might not be willing to provide banks with this additional information. Scholars argue, that if the SMEs trust their banks and provide them this additional information, they are more likely to obtain the credit they need. This study aims to find out what is the role of trust in the bank-SME relationships. The context of this study is Finnish society where trust is high and the bank-SME relationships; the institutions that give the loans, the companies that need the loans and the relationships between these two entities. There is a lot of literature on trust itself, but there is a limited understanding of the role of trust in SME financing and this study will contribute to that area of research. The research in understanding the startup and SME financing has been increasing, but a limited understanding of the area remains.Description
Thesis advisor
Kautonen, TeemuGartner, Johannes