Subsidizing Failing Firms: Evidence from Chinese Restaurants

47 Pages Posted: 15 Sep 2020 Last revised: 21 Jun 2021

See all articles by Yinglu Deng

Yinglu Deng

Tsinghua University - School of Economics & Management

Fangzhou Lu

The University of Hong Kong - Department of Finance; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Jiaheng Yu

Massachusetts Institute of Technology (MIT)

Hao Zheng

Peking University - School of Economics

Date Written: September 20, 2020

Abstract

Leveraging a novel dataset on Chinese restaurants and using the rent reduction program as a quasi-experimental shock, we find that financial stimulus policies reduce debt overhang during the COVID-19 crisis. Rent reductions by the equivalent of a restaurant employee's annual salary can save at least 0.25 jobs per store and improve restaurants' operational performance. Financial stimulus strengthens private efforts to lean against the crisis, leading restaurants to increase order discounts and promote delivery services. Franchise-based restaurants benefit more from rent reductions than company-owned restaurants. Our results imply that decentralized firms are better at deploying the resources of fiscal stimulus programs.

Keywords: Rent reduction, COVID-19, debt overhang, organizational structure, restaurant chains

JEL Classification: D23, D40, E62, G32, J21

Suggested Citation

Deng, Yinglu and Lu, Fangzhou and Yu, Jiaheng and Zheng, Hao, Subsidizing Failing Firms: Evidence from Chinese Restaurants (September 20, 2020). Available at SSRN: https://ssrn.com/abstract=3692525 or http://dx.doi.org/10.2139/ssrn.3692525

Yinglu Deng

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Fangzhou Lu

The University of Hong Kong - Department of Finance ( email )

Pokfulam
Hong Kong

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Jiaheng Yu (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Hao Zheng

Peking University - School of Economics ( email )

Beijing
China

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