Subsidizing Failing Firms: Evidence from Chinese Restaurants
47 Pages Posted: 15 Sep 2020 Last revised: 21 Jun 2021
Date Written: September 20, 2020
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: Suggested Citation