LOAN GUARANTEES AND FIRM RESPONSE:

RDD PRELIMINARY EVIDENCE

February 8, 2023
MOTIVATION

• effect loan pricing (i.e. interest rates) on firm performance?

− ↓ interest rates =⇒ ↑ corporate loans =⇒ ↑ employment & investment

• main issue =⇒ ENDOGENEITY

− interest rates ⇐⇒ firm performance

• empirical strategy =⇒ Belgian loan guarantee program 2020

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BELGIAN LOAN GUARANTEE PROGRAM

• Belgian government =⇒ e50 billion

=⇒ allocated to banks based on market share

− first phase: 04/2020−06/2020

− second phase: 07/2020−12/2020

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BELGIAN LOAN GUARANTEE PROGRAM

• who could participate? =⇒ non-financial firms

− no financial arrears =⇒ February 1st 2020

− no debt restructuring =⇒ January 31st 2020

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BELGIAN LOAN GUARANTEE PROGRAM

• who could participate? =⇒ non-financial firms

− no financial arrears =⇒ February 1st 2020

− no debt restructuring =⇒ January 31st 2020

• loan characteristics

− amount =⇒ firm’s liquidity needs

− maturity =⇒ 1 year

− interest rate =⇒ ≤ 1.25%

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BELGIAN LOAN GUARANTEE PROGRAM

• loan characteristics

− amount =⇒ firm’s liquidity needs

− maturity =⇒ 1 year

− interest rate =⇒ ≤ 1.25%

• interest rate differential =⇒ size dependent

− SME firms → 1.25% + 0.25%

− Large firms → 1.25% + 0.50%

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BELGIAN LOAN GUARANTEE PROGRAM

• loan characteristics

− amount =⇒ firm’s liquidity needs

− maturity =⇒ 1 year

− interest rate =⇒ ≤ 1.25%

• interest rate differential =⇒ size dependent

− SME firms → 1.25% + 0.25%

− Large firms → 1.25% + 0.50%

• IDEA: =⇒ RD design with firms close to cutoff

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SIZE CLASSIFICATION: BELGIAN FIRMS

• SME vs Large

− employees =⇒ 50

− turnover =⇒ e9 million

− total assets =⇒ e4.5 million

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SIZE CLASSIFICATION: BELGIAN FIRMS

• SME vs Large

− employees =⇒ 50

− turnover =⇒ e9 million

− total assets =⇒ e4.5 million

• firm is Large is surpass 2 out 3 thresholds

• firm is SME otherwise

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RD DESIGN: PRELIMINARY STRATEGY

• Data: firm balance-sheet data (Belfirst)

− ↑ total debt between 2020-2019.

− focus on employment (FTE) =⇒ check discontinuity

− Exclude NACE industries =⇒ Finance, Education, Health & Government controlled

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RD DESIGN: GRAPHICAL APPROACH

• Discontinuity → equally distance employment bins

( )
L̄i ∈ [0 , 3], (3 , 6], .., , (45 , 48], (48 , 51], ..., (96 , 99]

FTEi,2018 +FTEi,2019
L̄i = 2
• yi,2020 =⇒ firm’s outcome for 2020
" #


E yi,2020 L̄i ∈ Lbin
i

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RD DESIGN: GRAPHICAL APPROACH

• Outcome variables

− Investment =⇒ Change in fixed assets

Fixed Assetsi,2020 − Fixed Assetsi,2019

Investmenti,2020 = × 200
Fixed Assetsi,2020 + Fixed Assetsi,2019

− Employment =⇒ Change in FTE

FTEi,2020 − FTEi,2019
∆FTEi,2020 = × 200
FTEi,2020 + FTEi,2019

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PRELIMINARY EVIDENCE: INVESTMENT 2020

6
3
Change Fixed Assets (%)
-6 -3
-9
-12 0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Employment

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PRELIMINARY EVIDENCE: EMPLOYMENT GROWTH 2020

.5
0
-.5
Employment Growth (%)
-2 -1.5
-2.5
-3 -1

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Employment

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RD DESIGN: REGRESSION APPROACH

• Notation 
 1 if loan fee = 25bps
Di =
0 if loan fee = 50bps

gi = FTEi − 50
FTE
• three specifications
− Base RD specification
g i + ρ Di + ϵ i
yi = α + β FTE (1)
− 3rd order polynomial
yi = α + f(FTEi , Di ) + ρDi + ϵi (2)
where:
2 3 2 3
f(FTE gi + β02 FTE
gi , Di ) = β01 FTE gi + β03 FTE
gi + β1∗ Di × FTE
gi + β2∗ Di × FTE
gi + β1∗ Di × FTE
gi

− firm regressors + industry FE

gi , Di ) + ρDi + ϵi
yi,j = α + FEj + Xi Γ + f(FTE (3)
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RD DESIGN: PRELIMINARY REGRESSION RESULTS

Employment Growth Investment

(1) (2) (3) (1) (2) (3)
Treatment (Di ) 0.713*** 0.331** 0.329* 2.105** 5.346* 4.318**
(0.093) (0.150) (0.178) (1.046) (2.856) (2.166)
Nobs 15,559 15,559 7,599 15,493 15,493 7,569
R̄2 4.40 8.40 13.58 0.03 0.16 0.84
Nace 1-Digit FE ✓ ✓
3rd Order Pol. ✓ ✓ ✓ ✓
Firm covariates ✓ ✓

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RD DESIGN: FALSIFICATION EXERCISE

• Employment bins =⇒ FTE for 2018

( )
FTEi,2018 ∈ [0 , 3], (3 , 6], .., , (45 , 48], (48 , 51], ..., (96 , 99]

• Firm outcomes =⇒ yi,2019

− Investment
Fixed Assetsi,2019 − Fixed Assetsi,2018
Investmenti,2019 = × 200
Fixed Assetsi,2019 + Fixed Assetsi,2018
− Employment
FTEi,2019 − FTEi,2018
∆FTEi,2019 = × 200
FTEi,2019 + FTEi,2018
" #


• using E yi,2019 FTEi,2018 ∈ Lbin
i,2018 =⇒ check if discontinuity persists

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FALSIFICATION EXERCISE: INVESTMENT 2019

12
9
Change Fixed Assets (%)
0 3
-3
-6 6

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Employment

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FALSIFICATION EXERCISE: EMPLOYMENT GROWTH 2019

1
.5
Employment Growth (%)
-.5 -1
-1.5 0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Employment

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