Do public subsidies reduce credit rationing? A matching approach
AbstractPublic support to firms has been a traditional and important industrial policy measure in many countries for several decades. One of the reasons for public intervention is the existence of market failures or imperfections. Informational asymmetries between borrowers and lenders of funds in particular are used to justify subsidies to firms, especially small and medium-sized enterprises. Within this framework, the main purpose of public subsidies is offsetting market imperfections. Although there is a great deal of literature on the effect of state aid in Italy, there is no agreement on its effectiveness. See Bagella and Becchetti (1998), Bronzini and De Blasio (2006) and Adorno, Bernini and Pellegrini (2007). These papers and many others focus on the effects on productivity, debt ratio, profitability and employment, but no empirical studies so far have analyzed the impact of public subsidies on credit rationing. This paper therefore makes a contribution to current empirical literature by examining the effects of public funding on credit rationing of small and medium-sized Italian firms. The basic idea of the paper is that public subsidies affect firms’ ability to obtain more funds. This is because incentive has a positive effect on investments, which, in turn, act negatively on credit rationing through collateralization. The problem of self-selection arises in this analysis, because in public financing programs, firms are selected on the basis of common characteristics. So subsidized firms and unsubsidized firms cannot be considered random draws. In order to overcome this problem, I use a Propensity Score Matching model. My results suggest that public subsidies reduce the probability of a firm being credit rationing.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24874.
Date of creation: 02 Sep 2010
Date of revision: 02 Sep 2010
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
- Valentina Adorno & Cristina Bernini & Guido Pellegrini, 2007. "The Impact of Capital Subsidies: New Estimations under Continuous Treatment," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 67-92, March.
- Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
- Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.