This paper examines the effectiveness of public credit guarantee programs in not only increasing the availability of loans to small and medium enterprises (SMEs), but in also improving the ex-post performance of borrowing firms. Using a unique panel data set, we identify the effects of a massive credit guarantee program implemented by the Japanese government from 1998-2001. While we do find that the availability of loans increased for program participants, when loans were provided by undercapitalized banks the increased liquidity persisted for only a few years. Further, the ex-post performance of program participants, with the exception of firms with sizable net worth, deteriorated relative to their non-participating counterparts.
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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number
400.
Length: 39 p. Date of creation: Sep 2008 Date of revision: Handle: RePEc:hit:piecis:400
Note: 3 September 2008, An earlier version of this paper circulated as "Effectiveness of Credit Guarantees in the Japanese Loan Market," 2006 RIETI Discussion Paper Series 06-E-04. Contact details of provider: Web page: http://cis.ier.hit-u.ac.jp/ More information through EDIRC
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