TAILIEUCHUNG - Credit Access for Small and Medium Firms Survey Evidence for Ireland

In the present paper we use a model to forecast default probabilities and estimate default correlations based on the threshold model described above. The default probability measures the probability of an obligor’s assets falling short of a threshold. In addition, asset correlations are modeled as a measure of co-movement of the asset values of two obligors. Default correlations can then be derived analytically. Our approach differs from existing studies on forecasting default probabilities (such as Escott/ Glormann/ Kocagil [2001], Falkenstein [2000] and Shumway [2001]) and estimating default correlations (like Dietsch/ Petey [2002], Gupton/Finger/Bhatia [1997] and Lucas [1995]) in several ways and therefore leads to new important results. . | 11 RT 11 Páipéar Taighde Teicniúil Research Technical Paper Credit Access for Small and Medium Firms Survey Evidence for Ireland Martina Lawless and Fergal McCann Banc Ceannais na hÉireann Central Bank of Ireland Eurosystem Credit Access for Small and Medium Firms Survey Evidence for Ireland Martina Lawless and Fergal McCann Central Bank of Ireland Abstract The extension of credit to SMEs in Ireland has been identified as a necessary condition for economic recovery and job growth. The debate on whether the reduction in credit to this sector is caused by credit rationing by banks or a lack of credit demand on the part of SMEs has received much attention in media and policy circles. Owing to a lack of relevant available micro-data research on this issue in Ireland has been sparse to date. The aim of this paper is to provide evidence using recently available firm-level data from the Central Statistics Office and the European Central Bank. Using the CSO data we find a moderate decline in credit applications coupled with a very large increase in credit rejection rates. Using firm-level production data we find no evidence that the accepted firms have been pooled according to firm performance - more productive and fast-growing firms are as likely to be rejected as any other firm. Using the ECB data we show that Irish firms are 15 to 18 percent more likely to be rejected for credit than a comparable Eurozone SME. We show also that Irish firms are less likely to have had decreased credit demand than other Eurozone SMEs in the 2009-10 period. The authors would like to thank the Central Statistics Office for access to the anonymised micro-data used in this analysis and in particular Kevin Phelan and Catalina Gonzalez for their help with the data. We would also like to thank Sarah Holton for assistance with the SAFE data and Trevor Fitzpatrick Ciaran Mac an Bhaird Kieran McQuinn Ken O Sullivan Gerard O Reilly and Ian Talbot for comments along with participants at the .

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