The innovation debt penalty: cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms

Marc Cowling, Elisa Ughetto and Neil Lee

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: High-technology firms per se are perceived to be more risky than other, more conventional, firms. It follows that financial institutions will take this into account when designing loan contracts, and that this will manifest itself in more costly debt. In this paper we empirically test whether the provision of a government loan guarantee fundamentally changes the way lenders price debt to high-tech firms. Further, we also examine whether there are differential loan price effects of a public guarantee depending on the nature of the firms themselves and the nature of the economic and innovation environment that surrounds them. Using a large UK dataset of 29,266 guarantee backed loans we find that there is a high-tech risk premium which is justified by higher default, but, in general, that this premium is altered significantly when a public guarantee is provided for all firms. Further, all these loan price effects differ on precise spatial economic and innovation attributes.

Keywords: cost of debt; high-tech firms; public loan guarantee scheme; loan default (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2018-02-01
New Economics Papers: this item is included in nep-cfn, nep-ino and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Technological Forecasting and Social Change, 1, February, 2018, 127, pp. 166-176. ISSN: 0040-1625

Downloads: (external link)
http://eprints.lse.ac.uk/81337/ Open access version. (application/pdf)

Related works:
Journal Article: The innovation debt penalty: Cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:81337

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().