The impact of government-supported participative loans on the growth of entrepreneurial ventures

We study the employment and sales growth of entrepreneurial ventures that have 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 and sales. In the two years following loan issuance, a 1-million-Euro PL generated an increase in average employment of between 12.1 (PSM) and 14.7 (2SLS) units and an increase in sales of between 1.09 and 1.97 million Euro relative to the average for the two years prior to loan issuance. The effect is larger for high-tech, young and small entrepreneurial ventures and for those that received a PL during the global financial crisis. The effect on growth is significant and stable, and PLs increase their beneficiaries' annual growth by 10.6% for employment and by 18.0% for sales. We do not find evidence of industry or regional spillovers, nor do we find differences in the probability of survival of PL beneficiaries after we control for their characteristics.