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Public Bank Guarantees and Allocative Efficiency

A natural experiment and matched bank/firm data are used to identify the effects of bank guarantees on allocative efficiency. We find that with guarantees in place unproductive firms receive larger loans, invest more, and maintain higher rates of sales and wage growth. Moreover, firms produce less productively. Firms also survive longer in banks’ portfolios and those that enter guaranteed banks’ portfolios are less profitable and productive. Finally, we observe fewer economy-wide firm exits and bankruptcy filings in the presence of guarantees. Overall, the results are consistent with the idea that guaranteed banks keep unproductive firms in business for too long.

Autoren Reint E. Gropp Andre Guettler Vahid Saadi

Professor Reint E. Gropp, Ph.D.

Über den Autor

Professor Reint E. Gropp, Ph.D.

Reint E. Gropp ist seit November 2014 Präsident des IWH und ist Inhaber eines Lehrstuhls für Volkswirtschaftslehre an der Otto-von-Guericke-Universität Magdeburg. Er ist Associate Fellow des Center for Economic Policy Research (CEPR) und Berater verschiedener Zentralbanken.

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