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Firm Support Measures, Credit Payment Behavior, and Credit Risk

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  • Camilo Gómez

    (Central Bank of Colombia)

  • Daniela Rodríguez-Novoa

    (Central Bank of Colombia)

Abstract

This paper examines the relationship between three government support measures (debt moratorium, credit guarantee programs, and payroll subsidies) and the firm's payment behavior on loans in Colombia. To do so, we take advantage of the COVID-19 pandemic and use it as a case study. Using highly granular data at the bank-firm level and a difference-in-difference approach, we find that firms subject to debt reliefs and government guarantee programs experienced a lower probability of default while these policies were in force. Subsequently, once the programs ended, the dynamic of the payment behavior of these firms was similar to that of those untreated. On the contrary, payroll subsidies did not affect firms' payment behavior. Regarding the effect on banks' risk assessment, our results suggest that participation in relief programs provided banks with new information about debtors' risk, which could indicate unintended consequences of government support programs.

Suggested Citation

  • Camilo Gómez & Daniela Rodríguez-Novoa, 2024. "Firm Support Measures, Credit Payment Behavior, and Credit Risk," IHEID Working Papers 03-2024, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp03-2024
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    More about this item

    Keywords

    firm support; credit default; credit risk;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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