IWH Discussion Paper 7/2015
58 Pages Posted: 23 Dec 2016
Date Written: June 2015
We take advantage of a natural experiment and matched bank/firm data to identify the effects of public guarantees on allocative efficiency. We find that with guarantees in place inefficient firms invest more and maintain higher rates of sales growth. Moreover, firms produce less efficiently. Also, firms survive longer in banks’ portfolios and firms that enter guaranteed banks’ portfolios are less efficient. At the sectoral level we observe lower firm exit rates and bankruptcies. Overall, the results are consistent with the idea that guaranteed banks keep inefficient firms in business for too long and prevent their exit from the market.
Keywords: Banking, Public Guarantees, Allocative Efficiency
JEL Classification: D22, D61, G21, G28, G31, G32
Suggested Citation: Suggested Citation
Gropp, Reint and Guettler, Andre and Saadi, Vahid, Public Bank Guarantees and Allocative Efficiency (June 2015). IWH Discussion Paper 7/2015. Available at SSRN: https://ssrn.com/abstract=2889304 or http://dx.doi.org/10.2139/ssrn.2889304