Impact of French State-Guaranteed Loans on Company Financial Statements During the COVID-19 Crisis

Résumé

The COVID-19 pandemic severely disrupted the global economy. As a result, most governments launched an unprecedented range of temporary credit and tax deferral programs. This article analyzes the effects
of French state-guaranteed loans (SGLs) on financial statements and corporate default risk using the difference-in-differences method. The French SGL program studied enabled companies to benefit from loans without any limitations on eligibility in terms of size or sector. Prior to the crisis, companies participating in the program had lower cash flow,
had higher debt, held more cash, were younger, and were more at risk of bankruptcy. Using a unique dataset, we show that companies participating
in the program increased their debt and cash holdings more than others due to precautionary borrowing and cash buffering. We demonstrate
that despite a reduction in bankruptcy during the COVID-19 crisis, participating companies had a higher bankruptcy risk after the crisis than they did before and compared to nonparticipants.