The Moderating Influence of Financial Market Development on the Relationship between Loan Guarantees for SMEs and Local Market Employment Rates


Address correspondence to: W. E. Jackson III, The J. Craig Smith Endowed Chair of Business Integrity, Culverhouse College of Commerce, University of Alabama, Tuscaloosa, AL 35487-0225. E-mail:


We empirically examine whether a major government intervention in the small firm credit market yields significantly better results in markets that are less financially developed. The government intervention that we investigate is Small Business Administration (SBA) guaranteed lending. After controlling for the appropriate cross-sectional market characteristics, we find that SBA guaranteed lending has a significantly more positive impact on the average annual level of employment when the local market is relatively less financially developed. This result has important implications for public policy directives concerning where SBA guaranteed lending should be directed.