Here is a fictitious academic paper:
“We consider a sample of 254 firms over the period 1996-1999. We find that 80% of interviewed entrepreneurs would be ready to pay an extra 4% on their loans in order to be able to borrow more. We interpret this evidence that banks forgo highly profitable investment opportunities. The size of such inefficiency appears to be at offs with the well documented efficiency of other financial sectors. We provide possible explanations for the inefficiency in terms of bureaucracy and mismanagement which are likely to affect the Banking sector more than other financial sectors. Finally, we document the existence of puzzle. Apparently, the inefficiency disappears when we restrict attention to a subsample of firms whose loans are fully collateralized. We believe that the striking difference between the collateralized subsample and the rest of the sample is an issue worth of further research”.
– What does the evidence suggest?
– How could the authors improve their paper?
– Can you think of any explanation for the “collateralized subsample” puzzle?