The Real Effects of Small-Firm Credit Guarantees during Recessions

68 Pages Posted: 17 May 2019 Last revised: 6 Jul 2021

See all articles by Juanita Gonzalez-Uribe

Juanita Gonzalez-Uribe

London School of Economics & Political Science (LSE) - Department of Finance

Su Wang

affiliation not provided to SSRN

Date Written: July 2021

Abstract

We estimate the real effects of UK guarantees introduced during 2009 by exploiting firm-size eligibility restrictions and rich administrative data. Relative to matched non-eligible firms, eligible businesses had higher 5-year debt and performance, yet similar repayment and interest rates. Employment, wages, and productivity also increased, yet there was no impact on pledgeable asset investment, even for capital-dependent firms. The evidence suggests that the guarantees relaxed credit constraints by enabling firms to access loans they could not obtain otherwise at any rate, especially for financing workers. We find no evidence supporting other mechanisms like debt-cost decreases, changes in incentives, or externalities.

Keywords: Collateral, Employment, Financial Constraints, Credit Guarantees

JEL Classification: D04, D22, G21, G28, G38, H32, H81

Suggested Citation

Gonzalez-Uribe, Juanita and Wang, Su, The Real Effects of Small-Firm Credit Guarantees during Recessions (July 2021). Available at SSRN: https://ssrn.com/abstract=3382280 or http://dx.doi.org/10.2139/ssrn.3382280

Juanita Gonzalez-Uribe

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom
+442074057686 (Phone)

Su Wang (Contact Author)

affiliation not provided to SSRN

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