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Credit rationing and the financial structure of Italian small and medium enterprises

Our aim is to analyze the effect of public subsidies on the development path of Italian small and medium enterprises (SMEs). Public subsidies to SMEs have been often used with the aim of favoring economic growth in less developed regions. The main theoretical arguments justifying this intervention are related to the idea that public subsidies can solve lack-ofcapital problems deriving from asymmetric information. According to Stiglitz and Weiss (1981), public subsidies to rationed firms can reduce the informational gap, leading subsidized firms to reduce their financial constraints and to increase their investment levels. Results obtained modelling leverage, performance and investment behaviour in a panel of around 1,900 enterprises over the years 1989 to 1994 seem to confirm the working hypotheses. However, they can not be considered as conclusive and further research is needed in this context.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): IX (2006)
Issue (Month): (May)
Pages: 167-184

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Handle: RePEc:cem:jaecon:v:9:y:2006:n:1:p:167-184
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  1. Begg, David & Portes, Richard, 1992. "Eastern Germany Since Unification: Wage Subsidies Remain a Better Way," CEPR Discussion Papers 730, C.E.P.R. Discussion Papers.
  2. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
  3. Bergström, Fredrik, 1998. "Capital Subsidies and the Performance of Firms," SSE/EFI Working Paper Series in Economics and Finance 285, Stockholm School of Economics.
  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. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-27, December.
  6. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
  7. Cowling, Marc & Mitchell, Peter, 2003. " Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to Small Business?," Small Business Economics, Springer, vol. 21(1), pages 63-71, August.
  8. J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department.
  9. de Mesa, David & Webb, David C., 1992. "Efficient credit rationing," European Economic Review, Elsevier, vol. 36(6), pages 1277-1290, August.
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