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Credit constrained firms and government subsidies: evidence from a European Union program

Author

Listed:
  • Eszter Balogh
  • Adám Banai
  • Tirupam Goel
  • Péter Lang
  • Martin Stancsics
  • Előd Takáts
  • Álmos Telegdy

Abstract

We assess the effects of non-repayable subsidies on financially constrained and unconstrained Hungarian SMEs. Using rejected subsidy applicants as control group and bank queries to the credit-registry to identify firms that applied for but did not receive a loan, we show that subsidies generate a sizeable incremental impact on asset growth of constrained firms relative to unconstrained businesses. This effect, however, is transitory and does not translate into higher sales, profitability or productivity. Financing, therefore, may not be the primary hurdle for these SMEs, and credit constraints may reflect other shortcomings, such as lack of good management or viable projects.

Suggested Citation

  • Eszter Balogh & Adám Banai & Tirupam Goel & Péter Lang & Martin Stancsics & Előd Takáts & Álmos Telegdy, 2021. "Credit constrained firms and government subsidies: evidence from a European Union program," BIS Working Papers 984, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:984
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    More about this item

    Keywords

    SMEs; subsidies; credit constraints; emerging market economies; difference-in-differences; credit registry micro-data;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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