Heterogeneous expectations, forecast accuracy and firms’ credit demand

Firm heterogeneity in formulating expectations constitutes a source of friction for the credit market. An expected improvement of credit conditions in the future may slacken current credit demand. Using a panel of European firms in the period 2010–2019, I find that better expectations on future (six-month) access to credit reduce the probability of a firm to apply for bank loans by 3 percent. Results also suggest that access to credit expectations are adaptive. Although firms fail 43 percent of their access to credit forecasts, they adjust their expectations learning from previous forecast errors.