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The Effects of Financial Support Policies on Corporate Decisions by SMEs

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  • Nam, Chang Woo

Abstract

This paper investigates the effectiveness of public credit guarantee programs and interest-support programs for SMEs (small and medium enterprises). First, assuming that there is an imperfect information structure in the SME loan market, we analyze how SME support financial programs affect the corporate decisions made by SMEs with regard to default or loan sizes. In addition, this paper theoretically computes the optimal levels of credit guarantee amounts and the interest-support spread under equilibrium with imperfect information in a competitive loan market. Second, the paper mpirically analyzes the continuous policy-treatment effect with the GPS (generalized propensity score) method. In particular, we consider the ratio of guaranteed debt to the total debt as a continuous policy treatment. The empirical results show that marginal effects of a credit guarantee on SMEs' productivity, rofitability, and growth potential decrease with the ratio of guaranteed debt to the total debt. In addition, the average effect of a credit guarantee is maximized when this ratio is at 50% to 60%.

Suggested Citation

  • Nam, Chang Woo, 2016. "The Effects of Financial Support Policies on Corporate Decisions by SMEs," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(3), pages 79-106.
    • Handle: RePEc:zbw:kdijep:v:38:y:2016:i:3:p:79-106
    DOI: 10.23895/kdijep.2016.38.3.79
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    References listed on IDEAS

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    2. Ilan Cooper, 2006. "Asset Pricing Implications of Nonconvex Adjustment Costs and Irreversibility of Investment," Journal of Finance, American Finance Association, vol. 61(1), pages 139-170, February.
    3. Lu Zhang, 2005. "The Value Premium," Journal of Finance, American Finance Association, vol. 60(1), pages 67-103, February.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    5. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    Cited by:

    1. Xu, Bing & Costa-Climent, Ricardo & Wang, Yanyan & Xiao, Yuan, 2020. "Financial support for micro and small enterprises: Economic benefit or social responsibility?," Journal of Business Research, Elsevier, vol. 115(C), pages 266-271.

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    More about this item

    Keywords

    Small and Mediumsized Enterprises; Information Asymmetry; Loan Market; Credit Guarantee; Generalized Propensity Score;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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

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