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Persistence of government funding in small business finance

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  • Ylhäinen, Ilkka

Abstract

This paper studies the interaction of Finnish manufacturing firms and a state-owned specialized financing company, whose objective is to cure credit market imperfections. The study ex-amines how the presence of such agency affects the behavior of the firms over time. Specifically, the study analyzes whether the observed persistence in the subsidized financing originates from true state dependence or unobserved firm-specific heterogeneity. The results show that there is positive state dependence in the granted government loans and guarantees. The findings indicate that the private sector agents may adjust their financing behavior in response to the government intervention in the credit markets. The unobserved firm-specific heterogeneity accounts for much of the observed persistence, which provides another reason for why some firms are more dependent on the government funding than the others.

Suggested Citation

  • Ylhäinen, Ilkka, 2010. "Persistence of government funding in small business finance," Discussion Papers 1232, The Research Institute of the Finnish Economy.
  • Handle: RePEc:rif:dpaper:1232
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    File URL: http://www.etla.fi/wp-content/uploads/2012/09/dp1232.pdf
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    References listed on IDEAS

    as
    1. David de Meza, 2002. "Overlending?," Economic Journal, Royal Economic Society, vol. 112(477), pages 17-31, February.
    2. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Julkisen yritysrahoituksen pysyvyys;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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