Borrower Discouragement and Gender-based Discrimination in the Credit Market: Firm-level Evidence From Southeast Asian Countries

Abstract

Access to finance for small and medium-sized enterprises (SMEs) is an important theme in the finance literature, as well as an important policy concern given that SMEs are considered the backbone of an economy, job creation, and economic growth. Bank discouragement behavior, where an entrepreneur or a firm manager is discouraged from applying for bank credit out of fear of loan application rejection, constitutes an important segment of small business financing and has long-term consequences for SMEs survival, profitability, and growth. Empirical studies on bank discouragement behavior have mainly been conducted in developed markets, with little empirical evidence on the dynamics of loan application behavior in the emerging markets of Southeast Asian economies. We examined two interrelated research objectives using firm-level survey data from five Southeast Asian countries. First, it examines whether the gender of the top managers of SMEs influences the firm's decision not to apply for a bank loan out of fear of rejection despite requiring external financing for business operations and growth. Second, this study examines whether SMEs run by female top managers face discrimination regarding bank loan approvals. The empirical results provide evidence in support of the notion that the top manager's gender is an important factor influencing borrower discouragement, as firms led by female top managers are more likely to be discouraged from applying for bank loans than those run by male top managers are. Second, this study finds evidence of gendered discrimination in loan approvals in Southeast Asian countries, except for Brunei Darussalam. Finally, firm size moderates gender disparities in the credit market, which are more prevalent in smaller firms than in larger firms.