IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v172y2025ics0304405x25001412.html
   My bibliography  Save this article

Defunding controversial industries: Can targeted credit rationing choke firms?

Author

Listed:
  • Sachdeva, Kunal
  • Silva, André F.
  • Slutzky, Pablo
  • Xu, Billy Y.

Abstract

This paper examines the effects of targeted credit rationing by banks on firms likely to generate negative externalities. We exploit an initiative of the U.S. Department of Justice, labeled Operation Choke Point, which compelled banks to limit relationships with firms in controversial industries. Using supervisory loan-level data, we show that, as intended, targeted banks reduced lending and terminated relationships with affected firms. However, most of these firms fully substituted credit through nontargeted banks under similar terms. Overall, we find no significant shifts in the performance and investment of affected firms, suggesting that targeted credit rationing is widely ineffective in promoting change.

Suggested Citation

  • Sachdeva, Kunal & Silva, André F. & Slutzky, Pablo & Xu, Billy Y., 2025. "Defunding controversial industries: Can targeted credit rationing choke firms?," Journal of Financial Economics, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:jfinec:v:172:y:2025:i:c:s0304405x25001412
    DOI: 10.1016/j.jfineco.2025.104133
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X25001412
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2025.104133?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    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
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:172:y:2025:i:c:s0304405x25001412. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.