This study is an attempt to investigate the motivation behind the decision to participate in the
credit market of SMEs from perspectives of behavioral finance and social capital theories. In addition,
the study also examines the effect of behavioral finance and social capital factors on the credit
source selection among SMEs. This study’s design strategy involves conducting questionnaire surveys
to SMEs owners and statistical techniques to analyze the determinants of credit participation
and credit source selection of borrowers. The findings showed that personal traits of SMEs owners/
managers in terms of behavioral finance factors such as debt and risk attitudes, present biased and
overconfidence and firms networking also have impacts on the firms’ credit participation and credit
source selection. The research is one of the few studies that consider the influence of behavioral
finance factors on firms financing decision. Furthermore, our result also contributes to explain the
common use of informal credit market in developing countries.
