Individual credit market experience and beliefs about bank lending policy: evidence from a firm survey

• Published date: 01 April 2024
• Author: Jarko Fidrmuc,Christa Hainz,Werner Hölzl
• Date: 01 April 2024
• DOI: http://doi.org/10.1111/sjoe.12548

Scand. J. of Economics 126(2), 387–414, 2024

DOI: 10.1111/sjoe.12548

Individual credit market experience

and beliefs about bank lending policy:

evidence from a f‌irm survey

Jarko Fidrmuc

Zeppelin University of Friedrichshafen, DE-88045 Friedrichshafen, Germany

jarko.f‌idrmuc@zu.de;jarko.f‌idrmuc@gmail.com

Christa Hainz

ifo Institute, DE-81679 Munich, Germany

hainz@ifo.de

Werner H¨

olzl

Austrian Institute of Economic Research (WIFO), A-1030 Vienna, Austria

werner.hoelzl@wifo.ac.at

Abstract

Using the Austrian Business Survey between 2011 and 2016, we study how f‌irms’ individual

credit market experiences inf‌luence their beliefs about the bank lending policy. Firms that

have recently experienced a loan rejection are more likely to believe that the lending policy is

restrictive. We see similar effects for f‌irms that were granted loans, but with conditions worse

than anticipated. Exploiting the panel structure shows that f‌irms without recent credit market

experience are less likely to change their beliefs, which converge towards the middle category.

Our f‌indings are in line with theories of rational inattention and with asymmetric experience

effects.

Keywords: Behavioral macroeconomics; formation of beliefs; persistence; pessimism; rational

inattention

JEL classif‌ication:D22; E51; G21

1. Introduction

Since the 2007–2008 f‌inancial crisis, and even more since the current pandemic

and energy crises, governments around the world have tried to secure access

to credit to revive and stabilize investment, employment, and hence overall

growth. Given the dynamic nature of investment, f‌irms’ decisions depend

directly upon their beliefs about current and future economic conditions.1

1We use the term “beliefs” and do not differentiate between perceptions and expectations as

research has shown a strong positive correlation between beliefs for different time dimensions

(Coibion et al., 2020b).

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution

and reproduction in any medium, provided the original work is properly cited.

388 Beliefs about bank lending policy

Research provides ample evidence on the formation of beliefs concerning

various macroeconomic variables.2However, beliefs about access to credit

have not yet been studied. Our results suggest that f‌irms tend to have higher

investment growth rates if they believe that access to credit is better. Thus,

policymakers and central banks could benef‌it from having more information

on f‌irms’ beliefs about access to credit and how these beliefs are formed.

In this paper, we try to f‌ill this gap by analyzing a large survey of f‌irms

in Austria, the WIFO Business Survey. The survey is unique in several

ways. First, the survey takes place quarterly, and thus it has not only a

cross-sectional dimension but also a panel dimension. We use data for the

period 2011–2016. Second, the survey contains, next to standard business

indicators, two questions regarding access to credit. Firms generalize the

current lending policy of banks, characterizing it as accommodating, normal,

or restrictive, which we henceforth call bank lending policy or, more generally,

bank lending. Besides their beliefs regarding the bank lending policy, f‌irms

also report their individual credit market experience, that is, whether they

have negotiated a loan during the last three months, whether they received

a loan, and whether the loan conditions were as anticipated or not. Like

other European countries, Austria has a bank-based f‌inancial system in

which bank credit is by far the most important source of external f‌inance

(European Central Bank, 2017). These two questions and the unique panel

dimension allow us to analyze whether beliefs about bank lending policy are

inf‌luenced by the f‌irm’s own recent credit market experience, and whether

positive and negative experiences have symmetric effects. Moreover, this

contributes to understanding why and when f‌irms update their beliefs, if they

do so.

Our analysis provides three novel insights into how f‌irms form beliefs

about bank lending policy. First, f‌irms form beliefs about bank lending policy

based on their individual experience in the credit market. Second, the effects of

positive and negative experiences in the formation of beliefs are asymmetric,

with the negative experience overweighing the positive experience. For

example, a credit rejection is associated with a higher probability that f‌irms

assess bank lending policy as being restrictive. This effect is not limited

to a rejection. Even if a f‌irm receives a loan but the terms are worse than

anticipated, it is more likely to believe that bank lending policy is restrictive.

Our results demonstrate that the asymmetry in belief formation, which we

call pessimism, arises not only if a f‌irm does not receive a loan, but more

generally if the conditions of the loan it receives are worse than anticipated.

2Coibion et al. (2018,2020b) review the effect of beliefs on investment, Coibion et al. (2020a)

analyze beliefs about inf‌lation, and Gennaioli et al. (2016) discuss beliefs about growth.

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.