Do R&D Subsidies Affect SMEs' Access to External Financing?

Many countries spend sizeable sums of public money on Ramp;D grants to alleviate debt and equity gaps for small firms' innovation projects. In making such awards, knowledgeable government officials may certify firms to private financiers. This paper investigates whether government subsidies to Ramp;D enhance SMEs' access to external financing due to this certification effect. Using a unique Flemish dataset of 1107 approved requests and a control group of 501 denied requests for a specific type of Ramp;D grant, we examine the impact on small firms' external equity, short term and long term debt financing. We find that obtaining a Ramp;D subsidy provides a positive signal about SME quality and results in better access to long-term debt