Information Asymmetry in SME Credit Guarantee Schemes: Evidence from Japan

Author Name SAITO Kuniyoshi (Meiji Gakuin University) / TSURUTA Daisuke (Nihon University)
Creation Date/NO. July 2014 14-E-042
Research Project Study on Corporate Finance and Firm Dynamics
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In this paper, we investigate whether adverse selection and/or moral hazard can be detected in credit guarantee schemes for small and medium enterprises (SMEs). Using bank-level data, we analyzed whether the subrogation rate is positively associated with the ratio of guaranteed loans to total loans, and found that the data are consistent with an adverse selection and/or moral hazard hypothesis. Further analyses show that the relationship is stronger for 100% coverage than for 80% coverage, indicating that "20% self-payment" mitigates the problem, but is not enough to eliminate it.

Forthcoming: Saito, Kuniyoshi, and Daisuke Tsuruta. "Information asymmetry in small and medium enterprise credit guarantee schemes: evidence from Japan," Applied Economics.