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Firm subsidies, financial intermediation, and bank stability

Author

Listed:
  • Aleksandr Kazakov

    (Halle Institute for Economic Research)

  • Michael Koetter

    (University of Magdeburg)

  • Mirko Titze

    (University of Halle)

  • Lena Tonzer

    (Vrije Universiteit Amsterdam)

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

Suggested Citation

  • Aleksandr Kazakov & Michael Koetter & Mirko Titze & Lena Tonzer, 2022. "Firm subsidies, financial intermediation, and bank stability," Tinbergen Institute Discussion Papers 22-078/IV, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20220078
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    References listed on IDEAS

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    More about this item

    Keywords

    Government subsidies; Financial intermediation; Bank stability;
    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
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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