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The innovation debt penalty: cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms

Cowling, Marc and Ughetto, Elisa and Lee, Neil (2017) The innovation debt penalty: cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms. Technological Forecasting and Social Change. ISSN 0040-1625 (In Press)

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Identification Number: 10.1016/j.techfore.2017.06.016

Abstract

High-technology firms per se are perceived to be more risky than other, more conventional, firms. It follows that financial institutions will take this into account when designing loan contracts, and that this will manifest itself in more costly debt. In this paper we empirically test whether the provision of a government loan guarantee fundamentally changes the way lenders price debt to high-tech firms. Further, we also examine whether there are differential loan price effects of a public guarantee depending on the nature of the firms themselves and the nature of the economic and innovation environment that surrounds them. Using a large UK dataset of 29,266 guarantee backed loans we find that there is a high-tech risk premium which is justified by higher default, but, in general, that this premium is altered significantly when a public guarantee is provided for all firms. Further, all these loan price effects differ on precise spatial economic and innovation attributes.

Item Type: Article
Official URL: https://www.journals.elsevier.com/technological-fo...
Additional Information: © 2017 Elsevier
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Sets: Departments > Geography and Environment
Date Deposited: 15 Jun 2017 10:42
Last Modified: 24 Jul 2017 08:35
URI: http://eprints.lse.ac.uk/id/eprint/81337

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