Arbeitspapier

Persistence of government funding in small business finance

This paper studies the interaction of Finnish manufacturing firms and a state-owned specialized financing company, whose objective is to cure credit market imperfections. The study ex-amines how the presence of such agency affects the behavior of the firms over time. Specifically, the study analyzes whether the observed persistence in the subsidized financing originates from true state dependence or unobserved firm-specific heterogeneity. The results show that there is positive state dependence in the granted government loans and guarantees. The findings indicate that the private sector agents may adjust their financing behavior in response to the government intervention in the credit markets. The unobserved firm-specific heterogeneity accounts for much of the observed persistence, which provides another reason for why some firms are more dependent on the government funding than the others.

Language
Englisch

Bibliographic citation
Series: ETLA Discussion Papers ; No. 1232

Classification
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
Subject
credit market imperfections
small business finance
government funding

Event
Geistige Schöpfung
(who)
Ylhäinen, Ilkka
Event
Veröffentlichung
(who)
The Research Institute of the Finnish Economy (ETLA)
(where)
Helsinki
(when)
2010

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Ylhäinen, Ilkka
  • The Research Institute of the Finnish Economy (ETLA)

Time of origin

  • 2010

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