grow

In this project 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 and other effects 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. Understanding the real effects of such policies is a first order question.

Working papers

[1] Information Frictions and Firm Take up of Government Support: A Randomised Controlled Experiment

Abstract: This paper studies whether informational frictions prevent firms from accessing government support measures using an encouragement based randomized controlled trial. We focus on two COVID-19 relief programs for firms in Portugal. These programs provide (i) wage support for workers who are kept on payroll and (ii) lines of credit backed by government guarantees. We randomly assign firms to a treatment providing either simplified information regarding the program or a combination of information and step- by-step application support. We find a significant treatment effect of simple information provision to firms on take up for the wage support program, but not for lines of credit. Our results constitute direct evidence that information frictions can act as a meaningful barrier to comprehensive distribution of firm- level support measures.

link to ssrn: here

– Media mentions

(In Portuguese) Expresso: here

[2] Supporting Small Firms Through Recessions and Recoveries

Abstract: We use variation in the access to a government credit certification program to estimate the financial and real effects of supporting small firms. This program has been implemented during the global financial crisis, but has remained active ever since, allowing us to analyze its effects both during recessions and recoveries. Eligible firms have access to government loan guarantees and a credit quality certification. We estimate real effects using a multidimensional regression discontinuity design. We find that eligible firms borrow more and at lower rates than non-eligible firms, allowing them to increase investment and employment during crises. Industry-level analysis shows reduced productivity heterogeneity in more exposed industries, which is consistent with improved credit allocation. However, when the economy is recovering the effects of the program are less pronounced and centered on the certification component.

(Also circulated with the title: The sensitivity of SME’s investment and employment to the cost of debt financing)

link to ssrn: here

Presented at LBS Summer Symposium 2019, Calvalcade 2021, NBER Summer Institute 2021, EFA 2022

Winner of “Internacionalização da Economia Portuguesa no Pós-Covid-19” - GEE/AICEP Paper Award

– Media mentions:

(In portuguese) Eco - PME reduziram dependência da banca na última década: here

(In Portuguese) Expresso - Bancos ainda são a principal fonte de financiamento das PME, mas têm vindo a perder relevância: here

(In Portuguese) Jornal de negocios - Apoios a pme tem efeito inexpressivo fora de crises: here