Impact of Social Capital on Information Asymmetry and Bank Financing

• Published in: International Journal of Business and Economics 2022-09, Vol.21 (2), p.129-146
• Main Authors: Gill, Amarjit, Mand, Harvinder S, Bhullar, Pritpal S, Biger, Nahum
• Format: Article
• Language: chi ; eng
• Subjects: Asymmetry; Bank Financing; Banking industry; Borrowing; Brand loyalty; Canada; Cash flow; Cooperation; COVID-19; Credit managers; Credit risk; Information Asymmetry; Pandemics; Regression analysis; Small business; Social Capital
• ISSN: 1607-0704

The COVID-19 pandemic has increased bank financing challenges for small business enterprises (SBEs) in Canada. This study examines the impact of SBE owners' social capital (S_CAPITAL) on information asymmetry (IA) and bank financing (B_FIN). A survey research design was utilized to collect data from Canadian SBE owners. Research participants were asked about their perceptions regarding the impact of S_CAPITAL (measured as connections/relationships between SBE owners and loan managers) on IA and B_FIN. This study used the ordinary least square (OLS), logistic regression (Logit), and a two-stage least square (2SLS) regression model to conduct data analysis. Empirical findings show that S_CAPITAL decreases IA between loan managers and SBE owners and increases B_FIN for SBEs in Canada. Empirical results show that S_CAPITAL increases the chances of a decrease in IA between SBE owners and loan managers by 19.40% and increases the chances of B_FIN by 97.98% for SBEs in Canada. Besides, decreasing IA reduces agency problems between the loan managers and SBE owners, increasing B_FIN chances for SBEs. The above findings contribute to the literature on the impact of SBE owners' S_CAPITAL on IA and B_FIN. The findings may encourage research scholars to conduct more studies on the impact of S_CAPITAL on IA and B_FIN using data from different countries. The owners of SBEs may find the empirical findings helpful in increasing the chances of obtaining bank loans. Consultants to SBEs may find our results helpful in providing consulting services. Banks may find results beneficial to reduce IA between loan managers and owners of SBEs to reduce loan default risk.