Entrepreneurship and Credit Constraints Evidence from a French Loan Guarantee Program∗

This paper uses a French loan guarantee program targeting new ventures to explore the link between credit constraints and entrepreneurship. Our empirical strategy exploits an exogenous regulatory shift in the mid 1990s which led to an increase in the overall size of the program and to the new eligibility of several industries. Using a detailed dataset with information on all French firms founded between 1988 and 1999, we provide a difference-in-differences type of estimation of the impact of the loan guarantee program on the creation and growth of start-up firms. At the industry level, the availability of loan guarantees has no impact on the overall number of firms created, but makes the average new venture larger, both in terms of assets and employment. At the firm level, the obtention of a loan guarantee helps newly created firms grow faster and pay a lower cost for their capital. How-ever, it also significantly increases their probability of default, suggesting that risk shifting may be a serious drawback for such loan guarantee programs