Corporate Bailouts: the Role of Costly External Finance and Operating Performance
Yulia Davydova, London School of Economics and Political Science
yulia.y.davydova@gmail.com
Vladimir Sokolov, ICEF, Higher School of Economics
vsokolov@hse.ru
Abstract
This paper investigates the effectiveness and impact of government bailout assistance on
firms experiencing financial constraints after a credit supply shock. We use a corporate
bailout program implemented by the Russian government during the recent financial crisis
as a case study, and examine how pre-crisis financial characteristics of firms affected
decisions on bailout assistance. Our results show that the allocation of funds was
significantly affected by the industry affiliation of the sample firms, as well as by their
operational and financial performance during the pre-crisis period. We also examine
whether government bailout assistance enhances the performance of recipient-firms in the
post-bailout period. Using propensity score matching and a difference-in-difference
framework, we find that non-recipient firms significantly increased their tangible fixed
assets and equity relative to recipients in the post-bailout period. At the same time,
recipient-firms significantly increased their long-term debt and working capital, while
decreasing their construction-in-progress. These findings suggest that the Russian
government’s bailout policies had an adverse impact on the performance of firmsrecipients,
possibly trough deterioration of the corporate governance channel as suggested
by Rajan and Subramanian (2007).
JEL classification: G32; G38