Trustworthiness and interest rates: an empirical study of Italian SMEs

Trust is expected to reduce transaction costs and agency costs and thus influence the cost of credit for small businesses. Assessments of trustworthiness are based on the ability, benevolence and integrity of the owner manager. The study examines whether lending managers’ assessments of the trustworthiness of SME owner managers are associated with the interest rate charged. Data were obtained from a survey of lending managers from small banks in North East Italy. Control variables and a vector of trustworthiness factors were collected on a random sample of customers, resulting in 365 small firms representing a 74% response rate. Multivariate regression analysis found evidence of a negative association between trustworthiness and interest rates. The study has implications for banks, owner managers and future research.