Government Financial Assistance as Catalyst for Private Financing

Abstract

This paper investigates whether financial assistance from Australian state and federal governments to private firms facilitates their access to external financing. Findings show that government assistance affects firms through increasing their propensity to seek financing and further by increasing their propensity to obtain the financing. The former is the larger effect. Young innovative firms are getting the biggest boost in credibility with government assistance. The form and the number of assistance received from the government also affect the type and strength of the impact. The findings underline the conditions under which government financial assistance leads to an extra channel for additionality.

Keywords: Debt Financing, Small Business, Entrepreneurship, Innovation, Public Policy

JEL Classification: D24, L26, L6, M13, R12