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dc.contributor.author Martin, Alberto
dc.contributor.author Mayordomo, Sergio
dc.contributor.author Vanasco, Victoria
dc.date.accessioned 2023-05-09T10:15:00Z
dc.date.available 2023-05-09T10:15:00Z
dc.date.issued 2023-12-11
dc.identifier.uri http://hdl.handle.net/10230/56737
dc.description.abstract Governments often support private credit with guarantee schemes, compensating lenders for borrower defaults. Such schemes often rely on banks to allocate guarantees among borrowers, but how banks do so is not well understood. We study this in an economy where entrepreneurial effort is crucial for efficiency but not contractible, creating a debt overhang problem. Credit guarantees can alleviate this problem only if they lower repayment obligations. We show that banks follow a pecking order, prioritizing risky, highly indebted firms from whom they extract more guarantee surplus by increasing repayment obligations. The competitive equilibrium is inefficient: a social planner would tilt the allocation towards more productive firms and pass all benefits through lower repayments. Our findings align with evidence from guarantees granted in Spain post-COVID.
dc.format.mimetype application/pdf
dc.language eng
dc.language.iso eng
dc.title Banks vs. firms: who benefits from credit guarantees?
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Credit guarantees
dc.subject.keyword Debt overhang
dc.subject.keyword Liquidations
dc.rights.accessRights info:eu-repo/semantics/openAccess

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