The Probability of Default of Public Guaranteed Loans: Does the Financial intermediary Matter?

This paper investigates the risk of failure of loans guaranteed by public credit guarantee schemes. We analyse the determinants of the time to default of approximately 15,000 loans guaranteed by the Italian Central Guarantee Fund between 2007 and 2009. Using the Cox proportional hazards model, we test the role of the financial intermediary that requests the guarantee on a firm’s behalf, while distinguishing between banks and mutual guarantee institutions (MGIs) and controlling for a set of variables that characterise each guaranteed loan. The findings confirm that loans are more likely to default when a bank—rather than an MGI—is involved in the guarantee process. Considering some elements (e.g. age, size and sector) that affect opacity among small- and medium-sized enterprises (SMEs), banks seem to perform better than MGIs in screening and monitoring loans requested by firms in the manufacturing sector.