A Beacon in the Night: Government Certification of SMEs Towards Banks
Martí, J, Quas, A. (2017). A Beacon in the Night: Government Certification of SMEs Towards Banks. Small Business Economics, DOI: 10.1007/s11187-016-9828-4
29 Pages Posted: 21 Oct 2015 Last revised: 15 Dec 2017
Date Written: September 22, 2016
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 significantly higher external financial debt (31.5%). The effect is stronger for smaller firms, or for those operating in high-technology sectors, which suffer more acutely from information asymmetries, and negligible for firms that already received support from another government-supported institution. After ruling out alternative explanations, we interpret this result as a positive evidence of government certification of SMEs towards banks.
Keywords: certification hypothesis, participative loans, long-term financing, government intervention, subsidized loans
JEL Classification: G21, G28, H81
Suggested Citation: Suggested Citation