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How does government-backed finance affect SMEs’ crisis predictors?

Author

Listed:
  • Lorenzo Gai

    (University of Florence)

  • Maria Cristina Arcuri

    (University of Parma)

  • Federica Ielasi

    (University of Florence)

Abstract

This paper estimates the impact of public guarantees on crisis predictive indicators among small and mid-size enterprises (SMEs). We use a confidential database provided by the Italian Ministry of Economic Development on the universe of guarantees granted by the Central Guarantee Fund. We apply difference-in-difference regressions and propensity-score matching estimators to a sample of approximately 40,000 SMEs over the 2010–2018 period. We find that obtaining a public guarantee improves profitability both in the short- and medium-term. On the other hand, SMEs’ financial health worsens in the short run, but financial burdens are alleviated 2 years after the issuance of a guarantee. The economic and financial effects of government-backed loans are amplified for micro-sized firms, companies operating in the service sector and direct guarantees. Our results can thus support public authorities in designing credit guarantee schemes capable of preventing SMEs’ zombification and protecting them from the risk of debt overhang.

Suggested Citation

  • Lorenzo Gai & Maria Cristina Arcuri & Federica Ielasi, 2023. "How does government-backed finance affect SMEs’ crisis predictors?," Small Business Economics, Springer, vol. 61(3), pages 1205-1229, October.
    • Handle: RePEc:kap:sbusec:v:61:y:2023:i:3:d:10.1007_s11187-023-00733-x
    DOI: 10.1007/s11187-023-00733-x
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    More about this item

    Keywords

    Business continuity; Central Guarantee Fund; Credit risk; Public guarantees; SMEs;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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