 The effect of credit guarantees on credit availability and delinquency ratesKevin Cowan (), Alejandro Drexler () and Álvaro Yañez Journal of Banking & Finance, 2015, vol. 59, issue C, 98-110 Abstract: We use new data to examine whether credit guarantees affect economic incentives and whether they affect the credit available to small- and medium-size enterprises (SMEs). We find that firms that have both guaranteed and non-guaranteed loans are 1.67% more likely to miss payments on their guaranteed loans, but are not more likely to default on these loans. These findings suggest that guarantees affect firms’ incentives to repay loans but not their long-term performance. We also find that firms selected into the guarantee programs are 1.17% more likely to default on their loans compared with similar firms that borrow without guarantees. Since we find evidence that long-term performance is not affected by guarantees, the higher default rates among firms selected into the guarantee programs must be the consequence of adverse selection. We also find that credit guarantees increase the aggregated amount of credit; in particular, one additional dollar of guarantees increases the total credit for SMEs by US$ 0.65. Keywords: Banking; Financial intermediation; Guarantees; Credit constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:59:y:2015:i:c:p:98-110 DOI: 10.1016/j.jbankfin.2015.04.024 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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