Abstract
This paper examines the effect of government procurement on firms’ bank loan financing. We use decennial population census as the instrument variable to examine this effect. Since federal fund allocation is based on local population, the population census generates an exogenous reallocation of federal fund. We find that government procurement does not decrease the probability of raising bank loan and the total amount of each deal. However, it increases the indirect costs of bank loan financing. We do find that the federal fund reallocation also re-balances the bank loan resources between firms who has government customers and who do not.