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Firm-level impact of public credit guarantees

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  • Akcigit, Ufuk
  • Seven, Ünal
  • Yarba, İbrahim
  • Yılmaz, Fatih

Abstract

This paper studies the firm-level short-term impact of one of the world’s largest credit guarantee programs recently implemented in Türkiye. Using a combination of firm-level administrative databases of the tax registry, credit registry, and the credit guarantee fund (CGF) registry, we analyze the characteristics of the CGF-supported firms and the program’s impact on their employment, sales, and credit default probability. Our findings indicate that, on average, the CGF program had a positive effect on the short-term performance of the treated firms. Specifically, CGF-supported firms preserved 17 percent more employment and achieved 70 percent higher sales, while reducing their credit default probability by 0.6 percentage points compared to their matched control group. Evaluating our estimation results at variable averages shows that every 1 million TL credit generated via the CGF program preserved 2.7 extra employment and stimulated about 3 million TL in sales. However, the program did not lead to increased productivity-enhancing investments, such as R&D. Additionally, we observe an overall increase in firm indebtedness, which may adversely affect firms’ long-term financial health. Furthermore, our analysis reveals that the program’s impact varies across firm sizes and sectors, with medium-sized firms and labor-intensive sectors experiencing the most significant benefits. Using this heterogeneity, we perform counter-factual policy exercises indicating that redesigning the program with such priorities can bring substantial efficiency gains.

Suggested Citation

  • Akcigit, Ufuk & Seven, Ünal & Yarba, İbrahim & Yılmaz, Fatih, 2024. "Firm-level impact of public credit guarantees," European Economic Review, Elsevier, vol. 170(C).
  • Handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s0014292124001909
    DOI: 10.1016/j.euroecorev.2024.104861
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    More about this item

    Keywords

    Credit guarantee schemes; SME lending; Impact analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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