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On the Usefulness of Tax Incentives for Business Angels and SME Owners: An Empirical Analysis


  • Cécile Carpentier
  • Jean-Marc Suret


Several governments have designed tax incentive programs to promote small business finance, yet evidence of their efficiency is very scarce. This article analyzes the QBIC program, introduced in Quebec to help capitalize SME. Individual investors in holding companies that finance one or more small corporations receive substantial tax credits. First, the functioning of the program is analyzed in light of the fundamentals of the small business finance paradigm, in particular the adverse selection, agency cost and control aversion problems. Because the program design does not consider these dimensions, it putatively cannot fulfill its primary objective of attracting angels. Rather, it should mainly serve mediocre quality firms, whose subsequent performance should be weak. We analyze the ownership of all the QBICs accredited between 1998 and 2003, and the operating performance of the 83 financed companies for which accounting data were available. Our tests confirm each of our hypotheses. The program can hardly be considered as a success. In terms of public policy, the study concludes that poorly designed programs cannot attain the objective of promoting small business capitalization. De nombreux gouvernements ont instauré des programmes fiscaux destinés à promouvoir le financement des petites et moyennes entreprises. Il existe toutefois très peu d'études de l'efficacité de ces initiatives. Nous analysons le programme de Société de placements dans l'entreprise québécoise (SPEQ), instauré au Québec pour améliorer la capitalisation des petites et moyennes entreprises. Les actionnaires de sociétés de portefeuille obtiennent d'importants crédits d'impôt lorsque ces sociétés financent des entreprises admissibles. Nous analysons en premier lieu le programme à la lumière des principes de base du financement des entreprises : l'asymétrie informationnelle, les problèmes d'anti-sélection et d'agence et la réticence à partager le contrôle. Comme le programme ne tient aucun compte de ces diverses dimensions, nous posons l'hypothèse qu'il ne permettra pas l'atteinte de l'objectif premier, qui était d'attirer des investisseurs providentiels dans l'actionnariat des entreprises. Nous supposons également que le programme devrait attirer principalement des entreprises de qualité médiocre, dont la performance après le placement sera faible. L'analyse de l'ensemble des SPEQ agréées entre 1998 et 2003 et des 83 sociétés financées pour lesquelles des données comptables sont accessibles permet de confirmer chacune de ces hypothèses. Le programme n'atteint pas ses objectifs et ne peut pas être considéré comme un succès. L'étude met en évidence l'importance de dessiner très soigneusement les programmes d'aide au financement des petites entreprises.

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  • Cécile Carpentier & Jean-Marc Suret, 2005. "On the Usefulness of Tax Incentives for Business Angels and SME Owners: An Empirical Analysis," CIRANO Working Papers 2005s-13, CIRANO.
  • Handle: RePEc:cir:cirwor:2005s-13

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    References listed on IDEAS

    1. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    2. Colin Mason & Richard Harrison, 2003. "Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry's Regional Venture Capital Funds Initiative," Regional Studies, Taylor & Francis Journals, vol. 37(8), pages 855-868.
    3. Lerner, Joshua, 1998. ""Angel" financing and public policy: An overview," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 773-783, August.
    4. Douglas J. Cumming & Jeffrey G. MacIntosh, 2003. "Comparative Venture Capital Governance. Private versus Labour Sponsored Venture Capital Funds," CESifo Working Paper Series 853, CESifo Group Munich.
    5. Cressy, Robert & Olofsson, Christer, 1997. "European SME Financing: An Overview," Small Business Economics, Springer, vol. 9(2), pages 87-96, April.
    6. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages 73-84, February.
    7. Berggren, Bjorn & Olofsson, Christer & Silver, Lars, 2000. "Control Aversion and the Search for External Financing in Swedish SMEs," Small Business Economics, Springer, vol. 15(3), pages 233-242.
    8. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
    9. Cumming, Douglas J., 2005. "Capital structure in venture finance," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 550-585, June.
    10. Björn Berggren & Christer Olofsson & Lars Silver, 2000. "Control Aversion and The Search for External Financing in Swedish SMEs," Small Business Economics, Springer, vol. 15(3), pages 233-242, November.
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    public policy; small business finance; tax incentives; business angels; politiques publiques; financement des petites entreprises; incitatifs fiscaux; investisseurs providentiels;

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