Dynamic Discouraged Borrowers

This paper investigates the intertemporal dynamics of borrower discouragement. Using a cross-country panel of firms that were resurveyed across the waves of the Survey on Access to Finance of Enterprises, we find that the probability of transitioning into discouragement changes over the business cycle and across bank financing products: term loans and credit lines. Past credit experiences and firm-level risk indicators are important factors in explaining the probability of being discouraged over time.We also analyse the transitioning out of discouragement, and show that firm-level improvements in credit history and profit outlook drive the transitioning out of the discouragement state.