Expanding the Concept of Agency Costs in SME Lending: A Theoretical Analysis of How to Integrate Different Conceptualizations of Rationality in Agency Costs

Mattias Andersen Tjalve & Sture Oksholm

Student thesis: Master thesis


Small and medium-sized enterprises’ access to credit has long been a bottleneck inhibiting growth in most of the western world. The problem of accessing credit for SME’s is two fold: Banks may not be willing to risk lending to small opaque firms, or their lending practices are ill suited for the requirements of the SME. Issues of communication can arise from agency problems between an SME owner-manager and a loan officer, restricting credit due to reasons that are not necessarily strictly economic in nature. therefore it is pertinent to ask how different conceptualizations of rationality can increase our understanding of agency problems, as suggested by Jensen and Meckling (1976), in SME lending relations? In order to do so an outline of how SME financing is structured with focus on information transfer is proposed and the type of information defined as hard or soft. A framework of different conceptualizations is then used to expand the understanding of what motivates agents’ behavior. Agency costs are a result of this behavior, therefore, understanding rationality from a broader perspective can give us a better understanding of how agency costs affect real choices and vice versa. Based on the reconceptualization of agency costs four hypothesis are proposed based on different cases. Finally, findings are discussed in conjunction with related research human nature, and the consequences of the analysis.

EducationsMsc in Business Administration and Philosophy, (Graduate Programme) Final Thesis
Publication date2019
Number of pages115
SupervisorsThomas Poulsen