The Impact of Government-Supported Participative Loans on Employment Growth in Entrepreneurial Ventures

Abstract

We study the employment growth for entrepreneurial ventures that received a government-sponsored participative loan (PL), a hybrid form of financing between debt and equity. We use propensity-score matching (PSM) and instrumental variable analysis (2SLS) to study a sample of 512 entrepreneurial ventures that received a PL from a Spanish government agency between 2005 and 2011. We find evidence that PLs significantly boosted their beneficiaries’ employment. In the two years following loan issuance, a 1-million-Euro PL generated an increase in average employment by between 12.1 (PSM) and 14.7 (2SLS) units relative to the average for the two years prior to loan issuance. The effect on growth is significant and stable, and PLs increase their beneficiaries’ annual employment growth by 10.6%.