Back From the Brink: State-Guaranteed Loans and Financial Recovery
Published on European Financial Management
This paper studies the financial trajectories of large firms that accessed a €200 billion state-backed loan programme in Italy, part of broader interventions to contain corporate distress during the COVID-19 crisis.
Using firm-level data from 2016 to 2023, we find that supported firms were initially more leveraged, less profitable, and less liquid.
Their financial performance, however, improved significantly after the intervention. The recovery in debt servicing capacity, even among the most fragile firms, is mainly driven by increased profitability rather than by an extension of debt maturity. Our findings highlight the role of public guarantees in fostering financial resilience.
Italy was the first advanced economy to experience the full force of the COVID-19 pandemic, rapidly emerging as the epicentre of the global crisis in early 2020. The country faced one of the highest death tolls and some of the most stringent and prolonged lockdowns in the developed world. While these restrictions were essential to contain the public health emergency, they came at a substantial economic cost. In response to this emergency, the Italian government enacted measures to support firms' financial health, most notably through the Liquidity Decree (Decreto Liquidità).
This paper investigates the financial trajectories of firms that accessed Italy's state guarantee programme during the COVID-19 crisis and addresses three main research questions:
1. which firms obtained public guarantees at the onset of the emergency?
2. To what extent did this intervention contribute to financial stabilization and recovery in the years that followed? T
3. How did outcomes vary within the group of supported firms—particularly between financially fragile and more resilient recipients—and to what extent does the evidence mitigate or reinforce concerns about unintended effects, such as zombie lending?
This study contributes to a growing body of literature on the role of public credit guarantees during crises, offering new insights into how such interventions affect firm behaviour and financial outcomes over time.