The two faces of subsidized loans

Eduardo K. Kayo, Walter Eclache da Silva and Roy Martelanc

Finance Research Letters, 2023, vol. 56, issue C

Abstract: Agency theory states that debt plays an essential disciplinary role in preventing management from overinvesting. In this study, we show contrasting results regarding subsidized loans from the Brazilian National Bank for Economic and Social Development (BNDES), which increases the probability of firms overinvesting in capital expenditures. BNDES loans create value for shareholders up to a certain point, whereafter the value declines. These results are robust to including several controls, firm-fixed effects, and instrumental variables related to the endogeneity of choosing BNDES loans. This study contributes to agency theory and development banks’ role while shedding light on important socioeconomic issues.

Keywords: BNDES; Subsidized loans; Capital structure; Agency theory; Overinvestment (search for similar items in EconPapers)
JEL-codes: G28 G31 G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323005214

DOI: 10.1016/j.frl.2023.104149

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