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Subsidizing Failing Firms: Evidence from Chinese Restaurants

Year: 2023

Type: article

Abstract: Using data on nearly 20,000 restaurants in China during the COVID-19 outbreak, we find evidence that the government-sponsored rent reduction program reduced debt overhang problems. Rent reductions, which averaged 36,000 RMB per restaurant, increase the open rate of restaurants by 3.7%, revenue by 11,000 RMB, and the number of employees by 0.36. Larger restaurants with higher committed costs benefit more from the rent reduction. The stimulus has a positive spillover effect that boosts the revenue of restaurants in the immediate vicinity of subsidized restaurants. The treatment effect varies with organizational structure in a manner consistent with an information frictions hypothesis.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109023001047

Authors: Yinglu Deng, Fangzhou Lu, Jiaheng Yu, Hao Zheng

Institutions: Tsinghua University, University of Hong Kong, University of International Business and Economics

Language: English

Topic: COVID-19 Pandemic Impacts

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W4386690907

FWCI:

Cites: 63

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Related to: 10