The innovation debt penalty: Cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms

Marc Cowling, Elisa Ughetto, Neil Lee

Research output: Contribution to journalArticle

Abstract

High-technology firms per se are perceived to be more risky than other, more conventional, firms. It follows that financial institutions will take this into account when designing loan contracts, and that this will manifest itself in more costly debt. In this paper we empirically test whether the provision of a government loan guarantee fundamentally changes the way lenders price debt to high-tech firms. Further, we also examine whether there are differential loan price effects of a public guarantee depending on the nature of the firms themselves and the nature of the economic and innovation environment that surrounds them. Using a large UK dataset of 29,266 guarantee backed loans we find that there is a high-tech risk premium which is justified by higher default, but, in general, that this premium is altered significantly when a public guarantee is provided for all firms. Further, all these loan price effects differ on precise spatial economic and innovation attributes.
Original languageEnglish
Pages (from-to)166-176
Number of pages11
JournalTechnological Forecasting and Social Change
Volume127
DOIs
Publication statusPublished - 28 Jun 2017

Bibliographical note

© 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Cost of debt
  • High tech firms
  • Public loan guarantee scheme
  • Loan default

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