Table 2.1 shows there are primarily three types of financial assistance programmes that have been evaluated. These are, firstly, loan guarantee programmes, secondly subsidies to “disadvantaged” groups to encourage them to start or grow a business, and thirdly, subsidies to develop the market for business angels.
Loan guarantee programmes
Evaluations of loan guarantee programmes from Japan and Canada are shown in Tables 2.2 and 2.3.
Subsidising the creation of businesses and growth of SMEs – perhaps by “disadvantaged” groups
Two examples of evaluations of these policies are presented in this section –although the programme in Table 4.8 could also be taken as another example. The first is of Law 44 in southern Italy where the “disadvantaged”
group is young people (Table 2.4). The second is grant assistance to SMEs in Northern Ireland and the Republic of Ireland (Table 2.5).
Table 2.2. Loan guarantee scheme, Japan Available online http://isb.sagepub.com/cgi/content/abstract/23/1/48
Country Japan
Time period of study 1980-2002
Title of report Promoting Enterprise Development or Subsidising Tradition: The Japanese Credit Supplementation Scheme.
Date of report 2005
Author/details M. Nitani and A. Riding, International Small Business Journal, Vol. 23[1], pp. 48-71.
Objective of policy To contribute to the smooth flow of funds by guaranteeing loans that are advanced to SMEs by banks or other financial institutions.
Key findings The Japanese Credit Supplementation Scheme is much more targeted to averting the failures of weak firms and much less focussed on new and growing firms.
Sophistication of evaluation Step 1:
●Reviews publicly available data.
●No survey undertaken.
Comments Helpful review placing Japan in context of other OECD countries operating an loan guarantee scheme.
Table 2.3. Loan guarantee scheme, Canada Available online www.ingentaconnect.com/content/els/08839026/2001/00000016/00000006/art00050
Country Canada
Time period of study 1989-1997
Title of report Loan Guarantee: Cost of Default and Benefit to Small Firms.
Date of report 2001
Author/details A.L. Riding and G. Haines, Journal of Business Venturing, Vol. 16[6], pp. 595-612.
Objective of policy ●To increase the availability of loans for the purpose of the establishment, expansion, modernisation and improvement of small business enterprise.
●To encourage lenders to provide debt financing to SMEs, that the lenders would otherwise consider too small or risky.
Key findings ●The SBLA is an extraordinary effective means of stimulating job creation and assisting small firms to survive and grow.
●The Canadian default rates are well below those for other countries.
Sophistication of evaluation ●232 000 loans were examined.
●Comparisons made with other OECD countries.
Comments ●Very helpful international review of LGS findings.
Table 2.4. Assistance to new enterprises started by young people, Italy Available online www.informaworld.com/smpp/content~content=a713693784
Country Italy
Time period of study 1988-1997
Title of report The Life Duration of Small Firms born within a Start-up Programme: Evidence from Italy.
Date of report 2001
Author/details A. Del Monte and D. Scalera, Regional Studies, 35.1, pp. 11-21.
Objective of policy
●Law 44 supports the creation of new firms by young people [< 35 years old] in Southern Italy in three ways:
– Subsidy of up to 60% of initial investment.
– Loans at 30% of market rates.
– For first three years a subsidy on variable costs.
Key findings
●Subsidies significantly affected the creation and survival of assisted firms established between 1988 and 1993.
●About half the firms would not have started without the subsidy.
Sophistication of evaluation No control groups used but careful use of hazard modelling.
Comments
Table 2.5. Grant assistance and small firm performance, Ireland Available online http://ideas.repec.org/p/eri/niercp/38.html
Country Ireland
Time period of study 1991-1994
Title of report Grant Assistance and Small Firm Development in Northern Ireland and the Republic of Ireland.
Date of report 2001
Author/details Stephen Roper and N. Hewitt-Dundas, Scottish Journal of Political Economy, Vol. 48, No. 1, pp. 99-117.
Objective of policy To enhance the performance of SMEs in Northern Ireland and the Republic of Ireland by the provision of different forms of grant support.
Key findings ●Grant support for SMEs in both Northern Ireland and the Republic of Ireland has a positive effect on employment growth.
●No effect is observed on either sales or profitability.
Sophistication of evaluation Step 6: Sophisticated selection and assistance effects taken into account.
Comments Exemplar Study.
Both are technically very good studies with the latter being one of the few Step 6 studies available for any of the policy areas.
Tax reliefs to business angels
Two studies of the provision of tax reliefs to support the business angel market are presented. Table 2.6 shows a UK evaluation of two different methods for providing tax relief to wealthy individual to encourage investment in small companies. Table 2.7 shows a second review of one of the schemes – Enterprise Investment Scheme (EIS).
Table 2.6. Public subsidies to business angels: EIS and VCT, UK Available online www.hmrc.gov.uk/research/report.pdf
Country United Kingdom
Time period of study 1994/95 onwards
Title of report Research into the Enterprise Investment Scheme [EIS] and Venture Capital Trusts [VCT].
Date of report 2003
Author/details Nick Boyns et al, PACEC for Inland Revenue.
Objective of policy ●Provide incentives to individuals to encourage the supply of equity finance to smaller unquoted companies.
●This is achieved by improving the post-tax return to investors.
●Thereby encouraging them to invest more in the company.
●Leading to better access to funds by companies.
●Leading to the UK having a more competitive small firms sector.
Key findings ●There is a lack of external benchmarks for effectiveness assessment.
●For EIS, for every GBP 1m in tax forgone, there is a rise in sales of GBP 3.3m and employment rise of 65 jobs.
●For VCT for every EIS tax forgone, sales increase by GBP 0.6m and employment by 9 jobs.
Sophistication of evaluation Step 5:
●Surveys of EIS investors, companies and controls.
●Surveys of VCT investors, companies and controls.
●Plus survey of advisors.
Comments Sound evaluation.
Table 2.7. Public subsidies to business angels: EIS, UK
Available online No
Country United Kingdom
Time period of study 1994/95 onwards
Title of report The Enterprise Investment Scheme: Why Investors and Companies do not use the Scheme.
Date of report December 1999
Author/details Confederation of British Industry, London.
Objective of policy ●Provide a targeted incentive for new equity investment in growth trading companies to overcome the problems faced by such companies in raising small amounts of equity finance.
●To encourage “business angels” by enabling them to take an active part in the management of the company as paid directors without losing entitlement to relief.
Key findings The scheme is too complicated and has too many rules.
Sophistication of evaluation No Survey: Report based on hypothetical examples and personal experience.
Comments Not really an evaluation.
The value of showing two evaluations of the same scheme is to illustrate two very different approaches to evaluating the same programme.