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The Effect of Credit Guarantees on R&D Investment of SMEs in Korea

  • Heshmati, Almas


    (Jönköping University, Sogang University)

Korean government has invested significant amount of resources through credit guarantee funds to promote SMEs survival, performance and R&D investment. This study attempts to identify determinants of provision of credit guarantees and estimate their effects on firms R&D expenditures. The relationship between duration of credit and firm's survival and performance is also investigated. Account is made for heterogeneity by various characteristics of firms when looking at credit guarantee and in-house R&D investment relationships. This study results in identification of factors that enhances efficiency of funds and their effects on firms' R&D investment behavior. It enables feedback effects on the public funds selection of firms guaranteed. A number of policy measures are proposed to promote a better balance between public and private investments to reduce the risk of business failure.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7851.

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Length: 25 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7851
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  1. Banker, Rajiv D. & Chang, Hsihui & Janakiraman, Surya N. & Konstans, Constantine, 2004. "A balanced scorecard analysis of performance metrics," European Journal of Operational Research, Elsevier, vol. 154(2), pages 423-436, April.
  2. Diana Hancock and James A. Wilcox., 1998. "The "Credit Crunch" and the Availability of Credit to Small Business," Research Program in Finance Working Papers RPF-282, University of California at Berkeley.
  3. Ono, Arito & Uesugi, Iichiro & Yasuda, Yukihiro, 2013. "Are lending relationships beneficial or harmful for public credit guarantees? Evidence from Japan's Emergency Credit Guarantee Program," Journal of Financial Stability, Elsevier, vol. 9(2), pages 151-167.
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  5. J. D. Howe & D. G. McFetridge, 1976. "The Determinants of R & D Expenditures," Canadian Journal of Economics, Canadian Economics Association, vol. 9(1), pages 57-71, February.
  6. Paul A. David & Bronwyn H. Hall & Andrew A. Toole, 2005. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," Development and Comp Systems 0502011, EconWPA.
  7. Yurdakul, Mustafa & Ic, Yusuf Tansel, 2004. "AHP approach in the credit evaluation of the manufacturing firms in Turkey," International Journal of Production Economics, Elsevier, vol. 88(3), pages 269-289, April.
  8. Jae Kang & Almas Heshmati, 2008. "Effect of credit guarantee policy on survival and performance of SMEs in Republic of Korea," Small Business Economics, Springer, vol. 31(4), pages 445-462, December.
  9. Aschauer, David Alan, 1988. "The Equilibrium Approach to Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 41-62, February.
  10. Hancock, Diana & Wilcox, James A., 1998. "The "credit crunch" and the availability of credit to small business," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 983-1014, August.
  11. Borensztein, Eduardo & Lee, Jong-Wha, 2002. "Financial crisis and credit crunch in Korea: evidence from firm-level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 853-875, May.
  12. Atish R. Ghosh & Swart R. Ghosh, 1999. "East Asia in the Aftermath: Was there a Crunch?," IMF Working Papers 99/38, International Monetary Fund.
  13. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  14. Park, Keehwan & Ahn, Chang Mo & Kim, Dohyeon & Kim, Saekwon, 2013. "An empirical study of credit spreads in an emerging market: The case of Korea," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 952-966.
  15. Inha Oh & Almas Heshmati & Chulwoo Baek & Jeong-Dong Lee, 2009. "Comparative Analysis Of Plant Dynamics By Size: Korean Manufacturing," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 512-538.
  16. Uesugi, Iichiro & Sakai, Koji & Yamashiro, Guy M., 2008. "The Effectiveness of Public Credit Guarantees in the Japanese Loan Market," PIE/CIS Discussion Paper 400, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  17. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  18. Arping, Stefan & Lóránth, Gyöngyi & Morrison, Alan D., 2010. "Public initiatives to support entrepreneurs: Credit guarantees versus co-funding," Journal of Financial Stability, Elsevier, vol. 6(1), pages 26-35, April.
  19. Frei, Frances X. & Harker, Patrick T., 1999. "Measuring aggregate process performance using AHP," European Journal of Operational Research, Elsevier, vol. 116(2), pages 436-442, July.
  20. Nugent, Jeffrey B & Yhee, Seung-Jae, 2002. " Small and Medium Enterprises in Korea: Achievements, Constraints and Policy Issues," Small Business Economics, Springer, vol. 18(1-3), pages 85-119, Feb.- May.
  21. Laeven, Luc, 2002. "Financial constraints on investments and credit policy in Korea," Journal of Asian Economics, Elsevier, vol. 13(2), pages 251-269.
  22. Inha Oh & Jeong-Dong Lee & Almas Heshmati, 2008. "Total Factor Productivity in Korean Manufacturing Industries," Global Economic Review, Taylor & Francis Journals, vol. 37(1), pages 23-50.
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