Beyond Subsidies: A Study of Sustainable Public Subordinated Debt in Spain

Elisabeth Bustos-Contell, Gregorio Labatut-Serer, Samuel Ribeiro-Navarrete and Salvador Climent-Serrano
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Elisabeth Bustos-Contell: Department of Accounting, University of Valencia, 46022 Valencia, Spain
Gregorio Labatut-Serer: Department of Accounting, University of Valencia, 46022 Valencia, Spain
Samuel Ribeiro-Navarrete: Department of Accounting, University of Valencia, 46022 Valencia, Spain
Salvador Climent-Serrano: Department of Financial and Actuarial Economics, University of Valencia, 46022 Valencia, Spain

Sustainability, 2019, vol. 11, issue 4, 1-7

Abstract: Evidence from business shows that small- and medium-sized enterprises (SMEs) are fragile. They suffer from a high mortality rate that primarily owes to difficulties in securing financing as a result of major information asymmetries. Despite these difficulties, SMEs provide the economic backbone of all economically developed countries. Aware of the key role of SMEs in national economic stability and of the financial problems that SMEs face, governments have designed a range of financial and tax measures to protect them. These financial measures include a highly specific form of public financing called subordinated debt. This concept refers to debt with the lowest credit seniority, just before equity. Subordination makes sense when companies go into liquidation because subordinated debt creditors are the last creditors to receive repayment, making recovery of this debt virtually impossible. Therefore, the risk borne by lenders of subordinated debt is similar to that of shareholders of the borrowing firm. This paper presents an ordinary least squares regression model to estimate the cash flows of SMEs financed by public subordinated debt. This provides public authorities with a tool to estimate the ability of SMEs to repay their debt and to thereby ensure that public subordinated debt financing is sustainable.

Keywords: public subordinated debt; sustainability; cash flow (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:4:p:1049-:d:206767

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