Back From the Brink: State‐Guaranteed Loans and Financial Recovery

ABSTRACT 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.