Discussion Papers 2021

CIRJE-F-1170	"Firm Growth, Financial Constraints, and Policy-Based Finance"
Author Name	Dore, Timothy E., Tetsuji Okazaki, Ken Onishi and Naoki Wakamori
Date	June 2021
Full Paper	PDF file
Remarks

Abstract
We study how government loan programs affect the growth of small businesses by examining a unique policy-based small business lending program in Japan. Combining the loanlevel program data with a financial statement database, we find that small business borrowers increase employment and asset levels after receiving the loan and that these effects persist for several years. Differences in debt levels are persistent over time, cash holdings of loan recipients fall in the long run, and the effects on asset levels are larger in magnitude than those on employment. In addition, the effects are larger in magnitude for firms identified as financially constrained. These results suggest that the government loan program is successful in relaxing binding financial constraints for small businesses that participate in the program.
Keywords: Policy-based finance, Small and medium-sized enterprises, Firm growth, Financial constraints.

Abstract

We study how government loan programs affect the growth of small businesses by examining a unique policy-based small business lending program in Japan. Combining the loanlevel program data with a financial statement database, we find that small business borrowers increase employment and asset levels after receiving the loan and that these effects persist for several years. Differences in debt levels are persistent over time, cash holdings of loan recipients fall in the long run, and the effects on asset levels are larger in magnitude than those on employment. In addition, the effects are larger in magnitude for firms identified as financially constrained. These results suggest that the government loan program is successful in relaxing binding financial constraints for small businesses that participate in the program.

Keywords: Policy-based finance, Small and medium-sized enterprises, Firm growth, Financial constraints.