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The effects of small-firm loan guarantees in the UK: insights for the COVID-19 pandemic crisis

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  • Gonzalez-Uribe, Juanita
  • Wang, Su

Abstract

Loan guarantees are popular policy responses during the COVID-19 crisis. Despite their prevalence, evidence of their effectiveness is sparse. We estimate the impacts of UK guarantees during the Great Recession, by exploiting firm-size eligibility restrictions. Guarantees increased four-year performance, labour-productivity, and employment growth, but not investment. Results are driven by firms with high-training-costs employees. They are consistent with the guarantees enabling a small number of financially constrained firms to retain workers that helped rebuild the businesses post-crisis. The results suggest that COVID-19 responses based on guarantees alone can be regressive, because poorer workers are more likely to have low-training-costs jobs.

Suggested Citation

  • Gonzalez-Uribe, Juanita & Wang, Su, 2020. "The effects of small-firm loan guarantees in the UK: insights for the COVID-19 pandemic crisis," LSE Research Online Documents on Economics 118916, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:118916
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    File URL: http://eprints.lse.ac.uk/118916/
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    References listed on IDEAS

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    Cited by:

    1. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial stability," Journal of Financial Economics, Elsevier, vol. 149(2), pages 260-295.

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    More about this item

    Keywords

    collateral; employment; financial constraints; investment; irreversibility; loan guarantees; Covid-19; coronavirus;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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