We now guess the effect away from relationship into the availability of borrowing

Also, we ong the new theoretic grounds. Sadly, it is hard to measure borrowing availableness personally. The firm’s loans proportion usually undervalue the credit open to the brand new firm-firms may have lowest loans ratios due to the fact company try liquidity restricted (a provision restriction) or as they don’t have a lot of dependence on exterior money (a consult constraint).

The firm’s personal debt proportion was at the same time determined by the newest firm’s request getting borrowing from the bank together with supply of credit out-of organizations. Therefore regressions which use the new firm’s personal debt proportion as the depending varying will suffer from a simultaneous equations prejudice. (more…)