Government Assistance, Bank Screening, and Firm Investment: Evidence from a Natural Disaster

Sujiao Zhao and José Jorge

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Natural disasters dramatically affect firms, but they also provide an opportunity to start anew. We exploit the 15-16 October 2017 Portuguese wildfires and the ensuing official assistance that subsidized 85% of the losses and entailed bank screening, applying a differences-in-differences approach. Firms that received government assistance subsequent to the wildfires increase output, the book value of fixed assets, employment, productivity, borrow long-term credit, and hoard cash. Overall, the evidence supports the “build back better” effect, the “broken window” fallacy at the one-year horizon, and a Keynesian multiplier effect in a two- to three-year window.

JEL-codes: D22 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202530

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