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Government Assistance, Bank Screening, and Firm Investment: Evidence from a Natural Disaster

Author

Listed:
  • Sujiao Zhao
  • José Jorge

Abstract

Natural disasters dramatically affect firms, but they also provide an opportunity to start anew. We exploit the 15-16 October 2017 Portuguese wildfires and the ensuing official assistance that subsidized 85% of the losses and entailed bank screening, applying a differences-in-differences approach. Firms that received government assistance subsequent to the wildfires increase output, the book value of fixed assets, employment, productivity, borrow long-term credit, and hoard cash. Overall, the evidence supports the “build back better” effect, the “broken window” fallacy at the one-year horizon, and a Keynesian multiplier effect in a two- to three-year window.

Suggested Citation

  • Sujiao Zhao & José Jorge, 2025. "Government Assistance, Bank Screening, and Firm Investment: Evidence from a Natural Disaster," Working Papers w202530, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202530
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    File URL: https://www.bportugal.pt/sites/default/files/documents/2025-12/WP202530.pdf
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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