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Does public funding reduce financial constraints of young firms in Germany?

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  • Nadine Weuschek

    (University of Münster)

Abstract

This paper examines the financing situation of young firms in Germany after receiving public funding. I find that, on average, public funding is associated with a significant reduction in the future probability of experiencing financial constraints. While grant tend to improve relationships with equity investors, subsidized loans or loan guarantees tend to improve relationships with external providers of both equity and debt capital. Additionally, I show that the effect of public funding is stronger for more financially constrained firms when provided as a subsidized loan or loan guarantee, and heterogeneous across entrepreneurs and startups. Furthermore, my results suggest that public funding is positively related to real outcomes, and that grants also help firms by stabilizing their economic position.

Suggested Citation

  • Nadine Weuschek, 2025. "Does public funding reduce financial constraints of young firms in Germany?," Journal of Business Economics, Springer, vol. 95(1), pages 103-154, January.
    • Handle: RePEc:spr:jbecon:v:95:y:2025:i:1:d:10.1007_s11573-024-01218-3
    DOI: 10.1007/s11573-024-01218-3
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    Cited by:

    1. Wolfgang Breuer & Jannis Bischof, 2025. "German business economics," Journal of Business Economics, Springer, vol. 95(1), pages 1-7, January.

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    More about this item

    Keywords

    Public subsidies; Financial constraints; Subsidized loans; Loan guarantees; Grants; Young firms;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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