The Impact of Public Loan Guarantees on Banks’Risk Taking and Firms’ Growth: Evidence from France

This paper investigates the economic impact and cost-efficiency of the loan guarantee programs of Bpifrance, which form the main public loan guarantee scheme in France. We first document that commercial banks aremore likely to use public loan guarantees for investment projects which appear relatively risky ex ante. Second, using propensity scorematching techniques and difference-in-difference estimators, we showthat loan guarantees have a positive impact on firm survival, sales, investment and employment. We compute the gross amount of public endowment needed to create an additional job, which ranges from € 2,800 to € 3,500 depending on the guarantee target.

The innovation debt penalty: Cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms

Using data between 2009 and 2020, we provide a detailed description of the borrowers within the Enterprise Finance Guarantee (EFG) loan portfolio, analyse time to default and how it differs across lender types. For limited companies, we match additional financial and non-financial data from public and proprietary databases and profile the characteristics of EFG companies within the population of limited companies. Employing hazard models we find loans granted to unincorporated businesses by the medium-sized financial institutions are associated with a much lower hazard than those provided by smaller local lending institutions and not-for-profit agencies. Moreover, we find some evidence that loans to limited companies, issued by the big UK banking groups, have a significantly lower default than those from medium-sized financial institutions. Large banks screen out high-risk firms. We argue that smaller lenders are able to price the risks rejected by the larger banks, using a wider range of credit information. JEL codes: G01, G21, L52, D25

This paper explores the heterogeneity across firms in the impact of and response to the COVID-19 shock. It relies on a survey conducted by Banco de España to 4,004 companies in November 2020 matched to very rich balance-sheet information on firm characteristics. According to our results, COVID-19 had a higher impact on the most vulnerable firms (small, young and less productive), and they also found more useful government policy support. Nonetheless, there were some exceptions: public loan guarantees had more difficulties reaching firms with less pre-existing debt; and furlough schemes were not able to fully protect jobs in firms with a higher share of temporary workers, which find firing more useful. While uncertainty is the key factor hindering firms’ activity, we use the announcement of the Pfizer vaccine on November 9th 2020 as a natural experiment to provide evidence that the vaccine announcement improved significantly firms’ subjective recovery expectations. This points at the importance of the communication of medical advances to guide firms’ expectations in pandemic episodes.

Public loan guarantees and guarantee banks are important instruments to reduce credit rationing due to information asymmetries, and thus to ease the financing of small and medium-sized enterprises. The present paper examines the effectiveness of these measures in the economically underdeveloped federal state of Mecklenburg-Vorpommern, based on a survey of assisted firms in 2007. We find positive effects on firm growth, employment and financing, which are likely to have a large leverage on the economic growth in this region.

The Italian Startup Act: A Microeconometric Program Evaluation

Purpose matters: Impact of public loan guarantees on business growth

In Europe, several countries have established public loan guarantee funds throughout direct/indirect loan programs to facilitate the access of SMEs and start‐ups to bank credit. This paper investigates whether start‐ups' level of access to bank loans during the early stage represents an imprinting factor with effects on the likelihood of survival once the firm reaches maturity. We rely on a firm‐level longitudinal data set of 49,111 Italian startups born from 2003 to 2005. Implementing a 2SLS regression analysis we show that the initial level of start‐up bank debt negatively influences the probability of default controlling for firm characteristics and performance. (JEL G21, M20, H32)

The study investigates the role of market-based finance and public financial support in aiding scaling up by European SMEs. First, we analyse the impact of public loan guarantee schemes on firms’ access to market-based instruments. Second, we study whether firms’ access to market-based finance and the use of public grants boost a firm’s (ex post) growth. The analysis is based on a unique and original dataset of about 31,000 Eurozone firms in the 2009–2020 period. The study finds that firms’ access to market-based finance is (i) driven positively by the previous use of public financial support schemes and (ii) has a positive effect on subsequent growth. In particular, SMEs display relatively higher growth in fixed assets, while for large firms, growth is mainly driven by current assets. Moreover, SME issuers using public grants achieve significantly stronger growth than comparable firms.

In this paper, we study the determinants of the spread charged by banks under a UK policy intervention scheme, aimed at supporting access to the credit market for small firms through guarantee backed loans. We exploit a unique dataset containing data on 29,266 guarantee backed loans under the UK SFLG scheme over the period 2000 to 2005. Results suggest that lower spreads are offered for loans of larger amounts and higher durations, for service firms, for larger firms, and for those located in the most advanced regions. Higher spreads are applied to high-tech manufacturing firms and to loans issued for working capital purposes. We also find that the presence of other extant debt is associated with a relatively higher spread and that this effect is especially significant for the subset of firms that have reached a maximum debt capacity based on collateralized assets. Further, we also find that the higher the incidence of the publicly guaranteed debt over the total amount of outstanding loans, the lower, on average, the spread. However, an increase in the guaranteed coverage leads to a contraction in the spread only for loans aimed at covering working capital needs rather than investments.

Lazarus, come forth! Public Loan Guarantees and the Recovery of Zombie Firms

Italian Banks, the Legacy of the Global Financial Crisis and the COVID-19 Pandemic: So Far so Good

At a marathon hearing, the energy secretary is unapologetic for the failure of his department's first clean energy loan guarantee and stands by the decision to subordinate the public loan to private investors.

Credit rationing is most severe for young and small firms. Public loan guarantee schemes are explicitly designed to increase the supply of loans to these types of firms. In this article, we explore how the EFG scheme evolved through the lens concentration of the cash volume of loans issued. Adopting the Herfindahl–Hirschman Index (HHI), we find that loan size concentration had increased substantially over time, and there was a smaller number of larger loan sizes issued. In short, we posit that it had less relevance to the most acutely rationed small firms and had transitioned into a less targeted scheme. However, we observe different lending behaviors for lenders of different sizes, as smaller lenders became more focused and targeted in their lending over time. It is evident that increasing the diversity of lenders for such schemes would reinforce the effectiveness and relevance of the scheme.

This paper analyzes the impact of the Italian Start Up Act which entered into force in October 2012. This public policy provides a unique bundle of benefits, such as tax incentives, public loan guarantees, and a more flexible labor law, for firms registered as “innovative startups” in Italy. This legislation has been implemented by the Italian government to increase innovativeness of small and young enterprises by facilitating access to (external) capital and (high-skilled) labor. Consequently, the goal of our evaluation is to assess the impact of the policy on equity, debt, and employment. Using various conditional difference-in-difference models, we find that the Italian innovative startup policy has met its primary objectives. The econometric results strongly suggest that Italian innovative startups are more successful in obtaining equity and debt capital and they also hire more employees because of the program participation.