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Defaults on government guaranteed loans by potential high growth firms: Evidence from the COVID-19 period

Author

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  • Kacer, Marek
  • Wilson, Nicholas
  • Zouari, Sana

Abstract

Equity finance is used to fund innovative and growth-oriented businesses because of its resilience during economic downturns and investors' willingness to undertake higher risks compared to other financing. During the pandemic, 6500 equity-funded firms obtained government-guaranteed loans from traditional banks and new lenders. Our analysis of the determinants of loan default revealed that new lenders experienced a significantly higher default rate than the main banking sector. Additionally, firms funded by equity crowdfunding have a higher loan default rate than those backed by other equity providers. We explore the factors influencing defaults and variations by lender and investor type.

Suggested Citation

  • Kacer, Marek & Wilson, Nicholas & Zouari, Sana, 2024. "Defaults on government guaranteed loans by potential high growth firms: Evidence from the COVID-19 period," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524004257
    DOI: 10.1016/j.econlet.2024.111941
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    More about this item

    Keywords

    Guaranteed loan; Equity-funded companies; Loan default; Lender type; Investor type; COVID-19 crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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