Journal
REVIEW OF FINANCIAL STUDIES
Volume 33, Issue 2, Pages 610-643Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/hhz059
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I document a beneficial effect of the government's participation in product markets. Exploiting the 2008-2009 financial crisis as a natural experiment, I show that federal procurement contracts insulated government contractors' performance from the crisis. By 2009, government contractors had 15% higher market capitalization, had 18% higher capital expenditures, and received 26% more bank credit than did similar firms. This stabilizing effect, in turn, spilled over into neighboring firms. An average amount of government purchases reduced local employment losses by 35% in retail industries and by 48% in industries supplying government contractors. Spillovers were particularly strong in high economic slack areas.
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