Firm subsidies, financial intermediation, and bank stability

Aleksandr Kazakov, Michael Koetter, Mirko Titze and Lena Tonzer
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Aleksandr Kazakov: Halle Institute for Economic Research
Mirko Titze: University of Halle

No 22-078/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We use project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect quantity and quality of bank lending. We combine recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies

Keywords: Government subsidies; Financial intermediation; Bank stability (search for similar items in EconPapers)
JEL-codes: G21 G28 H25 (search for similar items in EconPapers)
Date: 2022-11-13
New Economics Papers: this item is included in nep-ban and nep-ure
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