Firm-Level Impact of Public Credit Guarantees

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. We find that the CGF program on average had a positive impact on the performance of treated firms. The CGF-supported firms were able to increase their employment by 17 percent and sales by 70 percent while these firms reduced their credit default probability by 0.6 percentage point relative 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. We also observe an overall increase in firm indebtedness, which may adversely affect firms’ long-term financial health. Moreover, our findings reveal that the program impact is heterogeneous across firm size and sector groups. Using this heterogeneity, we perform counterfactual policy exercises indicating that redesigning the program with such priorities can bring substantial efficiency gains.