Entrepreneurial Optimism, Credit Availability, and Cost of Financing: Evidence from U.S. Small Businesses

Does entrepreneurial optimism affect the credit availability to small firms and their cost of financing? Using a large sample of U.S. small businesses and a new measure of optimism, we find that higher levels of optimism result in significantly higher leverage. In addition, we find that firms with optimistic entrepreneurs tend to use more short-term debt. We do not find evidence that banks curtail lending to more optimistic entrepreneurs. In fact, banks are more likely to approve loan applications by optimistic entrepreneurs; they do not charge an interest premium; they do not require more collateral. * Dai (Corresponding author): Email: [email protected]; Phone: 505-442-4962; Fax: 518-442-3045.