Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 92: The Effect of Credit Guarantees on Survival and Performance of SMEs in Korea

Jae-Won Kang (), Almas Heshmati and Gyong-Gyu Choi
Additional contact information
Almas Heshmati: Ratio, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Gyong-Gyu Choi: Gyong-Gyu Choia

Abstract: This study evaluates the impact of provision of credit guarantee in Korea at the firm level. The data is assembled from two public funds providing credit guarantees covering the period 2000 to 2003. The sample firms consist of SMEs mainly. To measure the effects of credit guarantee, the relationship between credit guarantees, survival of firms, and their productive performance is analyzed. Since the data is collected as repeated cross sections and firms are not identified over time, the analysis is carried out by using a pseudo panel data approach. The pseudo panel data is created using time invariant firm characteristics. The result from regression analysis conducted indicates that the amounts of credit guarantee and the number of times a firm receives credit guarantees have effects on their survival and growth. The amounts of credit guarantee increase the growth of sales and productivity while frequency of credit guarantees decreases business failure. Size and age play a decisive role in survival of firms and their employment growth as well. Moreover, survival and performance of firms are different across periods, industries, and locations.

Keywords: Credit guarantee; SMEs; Pseudo panel data; survival; performance

JEL-codes: C23; C41; G28

29 pages, April 25, 2006

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