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Journal Article
How does government-backed finance affect SMEs’ crisis predictors?
2023
Overview
This paper estimates the impact of public guarantees on crisis predictive indicators among small and mid-size enterprises (SMEs). We use a confidential database provided by the Italian Ministry of Economic Development on the universe of guarantees granted by the Central Guarantee Fund. We apply difference-in-difference regressions and propensity-score matching estimators to a sample of approximately 40,000 SMEs over the 2010–2018 period. We find that obtaining a public guarantee improves profitability both in the short- and medium-term. On the other hand, SMEs’ financial health worsens in the short run, but financial burdens are alleviated 2 years after the issuance of a guarantee. The economic and financial effects of government-backed loans are amplified for micro-sized firms, companies operating in the service sector and direct guarantees. Our results can thus support public authorities in designing credit guarantee schemes capable of preventing SMEs’ zombification and protecting them from the risk of debt overhang.Plain English SummaryAccess to public credit guarantee schemes negatively impact SMEs’ financial equilibrium, but their recovery occurs 2 years after guarantee issue. How does one select eligible firms to prevent zombification? Using a confidential dataset provided by the Italian Ministry of Economic Development on guarantees issued by the Central Guarantee Fund, we investigate this topic with an unprecedented level of salience. Our findings reveal the need for cautious interventions on firms in financial distress and for the introduction of stress tests to select beneficiaries. Our results show that specific guarantee lines could be applied for direct guarantees granted to micro-sized enterprises and companies operating in the service sector to maximize the additionality of public resources. This study has practical, policy and societal implications, guiding SMEs in their assessment of the overall medium-term effects of guarantees and policy-makers in their rethinking of guarantee schemes to resolve trade-offs between effectiveness and sustainability.
Publisher
Springer Nature B.V
Subject
