Government financial assistance as catalyst for private financing

Abstract

This paper investigates whether financial assistance from Australian state and federal governments to firms facilitates access to external financing. Findings show that government assistance affects firms through increasing their propensity to seek financing and further by increasing their propensity to obtain the financing. The former is the larger effect. Besides, the largest additionality accrues to small and innovative firms. Magnitude of the effect also changes with the form and the number of assistance packages received from the government. The findings suggest that government financial assistance can have much broader impact than just supplying firms with direct cash.