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

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  • Davydova, Yulia
  • Sokolov, Vladimir

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.

Suggested Citation

  • Davydova, Yulia & Sokolov, Vladimir, 2014. "The real effects of financial constraints: Evidence from a debt subsidization program targeted at strategic firms," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 247-265.
    • Handle: RePEc:eee:empfin:v:29:y:2014:i:c:p:247-265
    DOI: 10.1016/j.jempfin.2014.07.006
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    Cited by:

    1. Sokolov, Vladimir & Solanko, Laura, 2016. "Political influence, firm performance and survival," BOFIT Discussion Papers 20/2016, Bank of Finland Institute for Emerging Economies (BOFIT).
    2. Sokolov, Vladimir & Solanko, Laura, 2016. "Political influence, firm performance and survival," BOFIT Discussion Papers 20/2016, Bank of Finland, Institute for Economies in Transition.
    3. repec:zbw:bofitp:2016_020 is not listed on IDEAS
    4. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).

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    More about this item

    Keywords

    Debt subsidy; Crisis; Strategic firms; Cash holdings; Banking development; Financial constraints;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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