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Title:Persistence of government funding in small business finance PDF Logo
Authors:Ylhäinen, Ilkka
Issue Date:2010
Series/Report no.:ETLA discussion paper 1232
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.
Subjects:credit market imperfections
small business finance
government funding
JEL:G21
G24
G32
H81
Document Type:Working Paper
Appears in Collections:ETLA Discussion Papers, Research Institute of the Finnish Economy (ETLA)

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