The Effects of Financial Support Policies on Corporate Decisions by SMEs

Chang Woo Nam

KDI Journal of Economic Policy, 2016, vol. 38, issue 3, 79-106

Abstract: This paper investigates the effectiveness of public credit guarantee programs and interest-support programs for SMEs (small and medium enterprises). First, assuming that there is an imperfect information structure in the SME loan market, we analyze how SME support financial programs affect the corporate decisions made by SMEs with regard to default or loan sizes. In addition, this paper theoretically computes the optimal levels of credit guarantee amounts and the interest-support spread under equilibrium with imperfect information in a competitive loan market. Second, the paper mpirically analyzes the continuous policy-treatment effect with the GPS (generalized propensity score) method. In particular, we consider the ratio of guaranteed debt to the total debt as a continuous policy treatment. The empirical results show that marginal effects of a credit guarantee on SMEs' productivity, rofitability, and growth potential decrease with the ratio of guaranteed debt to the total debt. In addition, the average effect of a credit guarantee is maximized when this ratio is at 50% to 60%.

Keywords: Small and Mediumsized Enterprises; Information Asymmetry; Loan Market; Credit Guarantee; Generalized Propensity Score (search for similar items in EconPapers)
JEL-codes: G14 G18 G21 G28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kdijep:v:38:y:2016:i:3:p:79-106

DOI: 10.23895/kdijep.2016.38.3.79

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