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Subsidizing Failing Firms: Evidence from Chinese Restaurants

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  • Deng, Yinglu
  • Lu, Fangzhou
  • Yu, Jiaheng
  • Zheng, Hao

Abstract

Using data on nearly 20,000 restaurants in China during the COVID-19 outbreak, we find evidence that the government-sponsored rent reduction program reduced debt overhang problems. Rent reductions, which averaged 36,000 RMB per restaurant, increase the open rate of restaurants by 3.7%, revenue by 11,000 RMB, and the number of employees by 0.36. Larger restaurants with higher committed costs benefit more from the rent reduction. The stimulus has a positive spillover effect that boosts the revenue of restaurants in the immediate vicinity of subsidized restaurants. The treatment effect varies with organizational structure in a manner consistent with an information frictions hypothesis.

Suggested Citation

  • Deng, Yinglu & Lu, Fangzhou & Yu, Jiaheng & Zheng, Hao, 2024. "Subsidizing Failing Firms: Evidence from Chinese Restaurants," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(8), pages 3803-3834, December.
    • Handle: RePEc:cup:jfinqa:v:59:y:2024:i:8:p:3803-3834_9
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