Did Targeting Financial Constraints During COVID-19 Make Sense?

44 Pages Posted: 5 Nov 2020

See all articles by Dominik Boddin

Dominik Boddin

Deutsche Bundesbank - Deutsche Bundesbank Research Data and Service Centre

Francesco D'Acunto

Boston College

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Date Written: November 3, 2020

Abstract

Following the experience of the 2008-2009 financial crisis, governments around the world extended large-scale liquidity and credit programs at the onset of the COVID-19 crisis with the aim of hindering waves of defaults and mass layoffs (aka, bazooka lending). But does focusing on firms' credit constraints make sense in crises that do not originate from a shock to the financial-sector? In a new large-scale survey of beliefs and plans of German firms during the COVID-19 crisis combined with administrative data, firms identify pessimistic and uncertain beliefs about future demand, rather than current or future credit constraints, as the main impediment for their business. Demand-driven uncertainty is also what limits firms' demand for credit. Firms predominantly rely on retained earnings to finance their operations. Those who access external financing do so largely through regular commercial loans rather than loans guaranteed by government programs. Firms that apply for government-guaranteed loans are more likely to display zombie features.

Keywords: E44, E62, G32, G38, H32

JEL Classification: Liquidity Programs, Financing Needs, Survey Data, Zombie Lending

Suggested Citation

Boddin, Dominik and D'Acunto, Francesco and Weber, Michael, Did Targeting Financial Constraints During COVID-19 Make Sense? (November 3, 2020). Chicago Booth Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3724427 or http://dx.doi.org/10.2139/ssrn.3724427

Dominik Boddin

Deutsche Bundesbank - Deutsche Bundesbank Research Data and Service Centre ( email )

Wilhelm-Epstein-Straße 14
Frankfurt am Main, 60431
Germany

Francesco D'Acunto

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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