The Effects of Financial Support Policies on Corporate Decisions by SMEs

Nam, ChangWoo

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This paper investigates the effectiveness of public credit guarantee

programs and interest-support programs for SMEs (small and medium

enterprises). First, assuming that there is an imperfect information

structure in the SME loan market, we analyze how SME support

financial programs affect the corporate decisions made by SMEs

with regard to default or loan sizes. In addition, this paper

theoretically computes the optimal levels of credit guarantee amounts

and the interest-support spread under equilibrium with imperfect

information in a competitive loan market. Second, the paper

empirically analyzes the continuous policy-treatment effect with the

GPS (generalized propensity score) method. In particular, we consider

the ratio of guaranteed debt to the total debt as a continuous policy

treatment. The empirical results show that marginal effects of a credit

guarantee on SMEs’ productivity, profitability, and growth potential

decrease with the ratio of guaranteed debt to the total debt. In addition,

the average effect of a credit guarantee is maximized when this ratio is

at 50% to 60%.

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