Purpose matters: Impact of public loan guarantees on business growth

• This study pioneers the use of Imai et al.’s (2023) panel matching framework to analyze Finnvera’s bank loan guarantees, offering robust causal inference by matching firms’ pre-treatment trajectories and revealing significant boosts in turnover, employment, and total assets. • By dissecting loan purposes, we find intangible capital investments drive the strongest growth in turnover and employment, while building investments most enhance total assets, providing a nuanced perspective on guarantee impacts often overlooked in prior research. • Guarantees yield amplified effects for micro-enterprises, with tentative evidence of positive productivity gains from intangible capital, challenging broader negative productivity claims and highlighting the need for tailored policy analysis. This study investigates the impact of public bank loan guarantees on firm performance in Finland, a small and open economy, leveraging a novel empirical approach and detailed financial instrument analysis. We combine registry-based data with records from Finnvera, Finland’s National Promotional Bank, and apply the cutting-edge panel matching methodology of Imai et al. (2023) to address causal inference challenges in this context. Our results reveal that guarantees significantly boost turnover, employment, and total assets, with effects varying by loan purpose. Notably, guarantees tied to intangible investments yield the strongest growth in turnover and employment, alongside substantial asset expansion, a granularity often overlooked in prior studies. While average productivity effects are near zero, we uncover tentative evidence of positive productivity gains for intangible capital guarantees. Further disaggregation highlights amplified impacts among micro-enterprises, offering fresh insights into the heterogeneity of policy outcomes. These findings advance our understanding of public financial instruments’ role in fostering economic growth at a nuanced level.