Mutual guarantee programs, where governments offer a guarantee on bank loans, are common economic stimulus measures (eg. Columba et al., 2010, Lelarge et al., 2010, Bach, 2014, Gonzalez-Uribe and Wang, 2020). Through these programs, governments offer (partial) guarantees on loans granted by financial institutions to small firms for the purpose of subsidizing the cost of borrowing and alleviating financing frictions, which are known to be larger for firms that are small and more informationally opaque. These programs are often used to respond to financial crises, when the supply of credit is limited. Despite their popularity among governments and policy-makers, the real effects of these programs remain understudied, including potential heterogeneous effects over the business cycle. Estimating their causal effects is challenging due to the endogenous selection of firms into these programs. Data availability also hinders the analysis of their effects, as medium and small firms are mostly private. Despite these challenges, understanding how investment and employment respond to changes in the cost of subsidized credit is of first-order importance given the resources devoted by governments around the world.
I investigate potential channels through which the links between informational frictions, access to financing and corporate growth can operate. I exploit a credit certification program targeting SMEs in Portugal. Through this government program firms have access to loans with a government guarantee, as well as a credit rating. By studying this program, I can estimate how sensitive investment, employment and firm growth are to the cost of debt financing. I can also investigate the role of credit certification for SMEs in promoting this growth. In a second step, I study the externalities generated by firm certification on their networks, which includes other firms in their supply chain, but also financial institutions. In this work I also provide detailed evidence of the mechanisms through which growth occur and is impeded due to specific frictions, such as information.
Small and medium-sized enterprises (SMEs) are firms for which informational frictions are expected to be particularly high and access to financing constrained. At the same time, these firms represent an extremely large part of the European economy: according to the “Annual Report on European SMEs” by the European Union (EU) in 2016 they represented almost all (98%) of non-financial enterprises, two-thirds (66%) of total EU employment and accounted for almost three-fifths (57%) of the value added generated by the non-financial sector. Despite their importance to the economy, only recently these firms have gained particular attention by researchers and policymakers that began to recognize the urgency of the SME credit access problem. Most SMEs do not have access to the capital markets, so typically their most important source of external finance are bank loans. Government and national financial structures affect credit availability mainly through lending technologies, so several measures are developed to improve the SMEs access to finance through bank loans at different levels.
