What role can mutual guarantee consortia play for financing innovation? A firm-level study for Italy

It is widely acknowledged that firms performing R&D investments are very likely to undergo financial constraints due to their specific characteristics, which make external debt an imperfect substitute for internal finance, especially for small sized enterprises (Carpenter and Petersen, 2002; Hall, 2002). This situation calls into question the role that mutual guarantee consortia (MGC) might have in mitigating the effect of financial constraints on the innovative activities performed by small and medium enterprises (SMEs). In this paper, we explore how effectively this role is played by exploiting a large dataset of guarantee-backed loans provided by Eurofidi (an Italian mutual guarantee consortium), including both financial and non-financial information on applicant firms. We find that, when the destination of loans is considered, applications demanded to sustain R&D and innovation activities have a lower probability of being accepted, but they also have a lower probability of turning into bad loans (conditional on loan's acceptance), thus highlighting the potential absence of a minimising default risk behaviour by the granting institution (Boyes et al., 1989) with respect to the observed characteristics of the applicants.