Government-Backed Zombies? Evidence from France's COVID- 19 Public-Guaranteed Loan Scheme

Oliver Asiamah () and Lucas Marchand ()
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Oliver Asiamah: LAPE - Laboratoire d'Analyse et de Prospective Economiques - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Lucas Marchand: LAPE - Laboratoire d'Analyse et de Prospective Economiques - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: Using loan-level data from the Banque de France, we investigate the impact of the French COVID-19 Public-Guaranteed Loan (PGL) program on zombie lending. The scheme created a quasi-experimental setting in which loans meeting specific criteria became eligible for a state guarantee. Our difference-in-differences estimation shows that the PGL program increased zombie lending, consistent with reduced screening incentives and weaker lending discipline once banks were largely insulated from credit risk. This effect was amplified for lenders with stronger evergreening incentives and firms with diversified borrowing networks, while it was mitigated by local banks' informational advantage. However, distressed firms receiving PGL-eligible loans were charged relatively higher interest rates. Overall, our findings highlight the long-term risks associated with large-scale guaranteed schemes, which can distort credit allocation and hamper post-crisis recovery by increasing zombie lending.

Keywords: Public guaranteed loan scheme; zombie lending; COVID-19 (search for similar items in EconPapers)
Date: 2026-09-28
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05771446

DOI: 10.13140/RG.2.2.17216.29440

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