Title: An encompassing model and test of the Evans-Jovanovic credit constraints hypothesis

Using an unbalanced panel of some 36,500 French startup firms and 11,600 closures over the period 1994-2000 we test for a role of bank credit scoring in small business lending using an encompassing version (GEJ) of the seminal Evans-Jovanovic(1989) (EJ) model of credit constraints. In the GEJ model the bank’s estimate of the probabilty of individual company survival (business quality) is allowed to figure in the startup credit decision, alongside collateral. On the French data EJ is rejected in favour of GEJ. Thus we conclude with EJ that there is evidence of startup credit constraints via bank lending rules, but that this imperfection is ameliorated by the bank’s estimate of firm quality: better firms and entrepreneurs are more likely to get loans. Enrepreneurial human capital is also found (consistently with Cressy, 1996) to play a major role in the survival of startup businesses and hence in the chances of getting a loan. Consistent with other empirical work we also establish that startup loan refusal (an upper bound to rationing) affects only a small proportion (9%) of applicants. However, for those whose loan request is rejected, dynamics show that they have a permanently higher hazard of failure (by 50%-90%), relative to their funded counterparts. Credit constraints thus contribute to small business failure.