The real effects of financial constraints: Evidence from a debt subsidization program targeted at strategic firms

Yulia Davydova and Vladimir Sokolov

Journal of Empirical Finance, 2014, vol. 29, issue C, 247-265

Abstract: We investigate the rationale and impact of the corporate debt subsidization program implemented by the Russian government during the recent financial crisis. Employing the difference-in-difference approach, we show that the program did not have a significant impact on capital investments of subsidy recipients, contrary to its intentions. We also find that a matched group of non-recipients on average exhibited a higher degree of cash hoarding behavior than subsidy-recipients in the post-program period, which suggests that the program eased external financial constraints of recipient-firms. Consistent with the theory on precautionary cash savings by firms, we further find that firms non-recipients based in cities with low banking development accumulated more cash holdings than recipients based in cities with a high banking development. Overall, our findings indicate that greater cash holdings are positively associated with the level of financial constraints of firms.

Keywords: Debt subsidy; Crisis; Strategic firms; Cash holdings; Banking development; Financial constraints (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G38 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:29:y:2014:i:c:p:247-265

DOI: 10.1016/j.jempfin.2014.07.006

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