Subsidizing Failing Firms: Evidence from Chinese Restaurants

Abstract

Leveraging a novel dataset on Chinese restaurants and using the rent reduction programs as a quasi-experimental shock, we find that financial stimulus policies reduce debt overhang during the COVID-19 crisis. Rent reductions by the equivalent of a restaurant employee's annual salary can save at least one job per store and improve restaurants' operational performance. Financial stimulus strengthens private efforts to lean against the crisis, leading restaurants to increase order discounts and promote delivery services. Franchise-based restaurants benefit more from rent reductions than company-owned restaurants. Our results imply that decentralized firms are better at deploying the resources of financial stimulus programs.