What If Firms Could Borrow More? Evidence from a Natural Experiment

40 Pages Posted: 4 Aug 2015

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Gustav Martinsson

Stockholm University - Stockholm Business School; Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students; Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK)

Christian J. Thomann

INDEK, Royal Institute of Technology (KTH); Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students

Date Written: July 31, 2015

Abstract

We study the effects of a unique lending program initiated by the Swedish government at the height of the financial crisis that allowed firms to suspend payment of all labor-related taxes and fees. Comprehensive administrative data on all Swedish firms show that firms borrowing from the program have higher rates of debt growth, investment spending, and employment growth compared to otherwise similar firms whose labor taxes were sufficiently low they could not benefit from the program. These results connect the availability of external credit with real activity in entrepreneurial firms in a way that has proved difficult in other settings.

Keywords: credit constraints, financial crisis, debt policy, entrepreneurial finance, employment growth, real activity

JEL Classification: G010, G180, G210, G320, L260, O160

Suggested Citation

Brown, James R. and Martinsson, Gustav and Thomann, Christian J., What If Firms Could Borrow More? Evidence from a Natural Experiment (July 31, 2015). CESifo Working Paper Series No. 5458, Available at SSRN: https://ssrn.com/abstract=2639577 or http://dx.doi.org/10.2139/ssrn.2639577

James R. Brown

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Gustav Martinsson

Stockholm University - Stockholm Business School

Albanovägen 18
House 2
Stockholm, 11419
Sweden

Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students ( email )

111 60 Stockholm
Sweden

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK) ( email )

Stockholm, 100 44
Sweden

HOME PAGE: http://https://www.kth.se/profile/gusma

Christian J. Thomann (Contact Author)

INDEK, Royal Institute of Technology (KTH) ( email )

Lindstedtsvägen 30-100 44
Stockholm, SE-100 44
Sweden

Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students ( email )

111 60 Stockholm
Sweden

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