Can Government Paternalism Prevent Credit Market Failure?
) Abstract This paper investigates how the possibility of government subsidies to firms affects lending and managerial incentives. We develop a model that shows that government support can perform as implicit insurer of firms, which leads to two main effects: lowering incen-tives of managers and increase of incentives to finance. The equilibrium with government intervention can be more efficient than one without intervention. We test the model predictions on Russian enterprise-level panel data for 1996-2000. Empirical evidence supports two predictions: 1) the probability that a firm gets external financing increases with increase of government’s care about firms survival; 2) firms with intermediate performance get subsidies. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note th
