This paper analyzes the medium-term growth performance of firms that exclusively received start-up assistance from programs administered by the Deutsche Ausgleichsbank (DtA), a state owned bank, within two years after startup. I apply a parametric selection approach that controls for two potential sources of self selection (receipt of assistance, complete interview data). The empirical analysis shows that firms receiving assistance perform better in terms of employment growth over a six year period. +49/621-1235-170 E-mail: almus@zew.de † Financial support from the Deutsche Ausgleichsbank (DtA) and the German Science Foundation under the grant LE1147/1-1 is gratefully acknowledged. Thanks to Wolfgang Franz, Georg Licht, Susanne Prantl, Frank Reize, Daniel Skambracks and Jochen Struck for valuable comments and discussion. Moreover, I thank Ruth Dollard for proof-reading. All errors that remain are, of course, the responsibility of the author alone.
Non-technical summary:The Deutsche Ausgleichsbank (DtA), a state owned bank, provides with its programs in the 'Entrepreneurship/Start-up' segment more than 80 per cent of all in Germany allocated public assistance means in this segment in the past decade. An evaluation of whether these programs have an impact on the medium-term development of firms or not is necessary and wanted because of the huge amount of means spent and the high expectations connected with these programs.This study uses information of the ZEW Entrepreneurship Study and a DtA data set that contains all assistance acceptances from 1990 to 1999 to evaluate the impact of the DtA assistance segment 'Entrepreneurship/ Start-up'.This was already done in some previous studies. Contrary to the short term horizon of these studies this analysis has a medium term evaluation horizon since employment growth over a six year period serves as success measure.Moreover, this study avoids some methodological problems of previous studies. An approach that controls for two possible sources of selection, which could lead to biased results if not considered, is therefore applied to assess whether DtA assistance has a medium term influence on the employment development. One possible source of selection concerns the fact that not the same amount of information for all firms is available in the ZEW Entrepreneurship Study. Therefore, it is possible that certain firms are more likely to possess a higher information content that can be used in the analysis. On the other hand, a descriptive analysis showed that the allocation of the DtA funds does not follow a principle of 'equal shares for all', but special firm groups are more likely to receive funding. This separates the observations into four groups. The econometric analysis shows that assistance receiving firms grow, other things equal, on average seven percentage points faster compared to firms not receiving DtA assistance. This result indicates the success of the programs under consideration.