A beacon in the night: government certification of SMEs towards banks

Policymakers around the world have created several schemes to support financially constrained SMEs. However, whether these mechanisms improve the access to external sources of finance or on the contrary crowd out private players remains a relevant question. In this paper, we study the effectiveness...

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Bibliographic Details
Published in:Small business economics 2018-02, Vol.50 (2), p.397-413
Main Authors: Martí, José, Quas, Anita
Format: Article
Language:English
Subjects:
Access
Banks
Business administration
Business and Management
Certification
Economics and Finance
Entrepreneurship
Finance
Government agencies
Humanities and Social Sciences
Industrial Organization
Information technology
Loans
Management
Microeconomics
Participating loans
Policy making
Small & medium sized enterprises-SME
Twins
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Summary:Policymakers around the world have created several schemes to support financially constrained SMEs. However, whether these mechanisms improve the access to external sources of finance or on the contrary crowd out private players remains a relevant question. In this paper, we study the effectiveness of a recent form of government support, called participative loan, in improving recipient SMEs' access to external financial debt. Relying on the literature about the certification effect, we develop hypotheses on the conditions under which the improvement is stronger. The empirical analysis is based on a sample of 488 Spanish SMEs that received participative loans from a Spanish government agency and a control group of 719 matched twins. We show that the former register a significantly higher external financial debt (+31.5%). The effect is stronger for smaller firms, or for those operating in hightechnology sectors, which suffer more acutely from information asymmetries, and negligible for firms that already received a support from another governmentsupported institution. After ruling out alternative explanations, we interpret this result as a positive evidence of government certification of SMEs towards banks.
ISSN:0921-898X
1573-0913
DOI:10.1007/s11187-016-9828-4