Final published version
Research output: Contribution in Book/Report/Proceedings - With ISBN/ISSN › Chapter
Research output: Contribution in Book/Report/Proceedings - With ISBN/ISSN › Chapter
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TY - CHAP
T1 - Intended and unintended consequences of government credit guarantee programmes
AU - Ioannidou, Vasso
AU - Liberti, José Maria
AU - Mosk, Thomas
AU - Sturgess, Jason
PY - 2018
Y1 - 2018
N2 - In this chapter, we provide empirical evidence that the underwriting of private sector loans through a loan guarantee programme distorts the efficient allocation of bank credit. We exploit cross-sectional and time series variation in the availability of loan guarantees to entrepreneurial firms in the Netherlands after the financial crisis to examine the impact of loan guarantees on a large sample of individual borrowers. The introduction and posterior withdrawal of the programme had the intended effect on the number of loan applications. Firms eligible for loan guarantees applied for more loans relative to those that were not. However, loan guarantees reduced the incentives on banks to screen and monitor the quality of loans by reducing collateralized loans and making riskier loans. Our findings suggest that government guarantee programmes may have adverse effects on the screening incentives of banks. © Oxford University Press 2018. All rights reserved.
AB - In this chapter, we provide empirical evidence that the underwriting of private sector loans through a loan guarantee programme distorts the efficient allocation of bank credit. We exploit cross-sectional and time series variation in the availability of loan guarantees to entrepreneurial firms in the Netherlands after the financial crisis to examine the impact of loan guarantees on a large sample of individual borrowers. The introduction and posterior withdrawal of the programme had the intended effect on the number of loan applications. Firms eligible for loan guarantees applied for more loans relative to those that were not. However, loan guarantees reduced the incentives on banks to screen and monitor the quality of loans by reducing collateralized loans and making riskier loans. Our findings suggest that government guarantee programmes may have adverse effects on the screening incentives of banks. © Oxford University Press 2018. All rights reserved.
KW - Credit guarantee programmes
KW - Financial crisis
KW - Loan guarantees
KW - Screening incentives
KW - The Netherlands
U2 - 10.1093/oso/9780198815815.003.0018
DO - 10.1093/oso/9780198815815.003.0018
M3 - Chapter
SN - 9780198815815
SP - 317
EP - 325
BT - Finance and Investment
PB - Oxford University Press Inc
CY - Oxford
ER -