Several governments have designed tax incentive programs to promote small business finance, yet evidence of their efficiency is very scarce. This article analyzes the QBIC program, introduced in Quebec to help capitalize SME. Individual investors in holding companies that finance one or more small corporations receive substantial tax credits. First, the functioning of the program is analyzed in light of the fundamentals of the small business finance paradigm, in particular the adverse selection, agency cost and control aversion problems. Because the program design does not consider these dimensions, it putatively cannot fulfill its primary objective of attracting angels. Rather, it should mainly serve mediocre quality firms, whose subsequent performance should be weak. We analyze the ownership of all the QBICs accredited between 1998 and 2003, and the operating performance of the 83 financed companies for which accounting data were available. Our tests confirm each of our hypotheses. The program can hardly be considered as a success. In terms of public policy, the study concludes that poorly designed programs cannot attain the objective of promoting small business capitalization.

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