The Moral Hazard issues of the State-Aid Programs for SME’s

Adverse selection and moral hazard are empirical research themes for the SME’s financing after the local and international crises of the 90’s and recently after the worldcrises starting in 2007. Although several empirical evidence is available for commercial and development banking related issues, the direct subsidies of the European Union and the partner states have not been investigated yet. Moral hazard has to be first generalized for state-aid related issues, incorporating the social surplus as value created by subsidized firms. As firm owners might transfer bank loans into private benefits, in case of direct subsidies firms utilize government funds without contributing to any increase in social surplus, i.e. we interpret moral hazard irrespective from private benefits and consider only the social surplus elements of the fund transfers.