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When do firms deliver on the jobs they promise in return for state aid?

Dong, Qingkai, Raghunandan, Aneesh ORCID: 0000-0003-0443-4984 and Rajgopal, Shivaram (2023) When do firms deliver on the jobs they promise in return for state aid? Review of Accounting Studies. ISSN 1380-6653

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Identification Number: 10.1007/s11142-023-09804-6

Abstract

US state governments frequently provide firms with targeted subsidies. In exchange, recipients promise to create or retain a certain number of jobs in the subsidizing state. Using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in their applications, (ii) the factors that determine which firms meet the targets, and (iii) the benefits to firms from meeting those targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 meet their promised job creation targets. Firms with poorer labor practices are less likely to meet their targets, as are politically connected firms that receive subsidies in election years. Conversely, promised job targets are also more likely to be met for subsidies accompanied by government press releases but less likely to be met for subsidies accompanied by firm press releases; the latter likely reflects the fact that firms put out press releases for larger subsidies with more ambitious job targets. In terms of consequences, firms that meet job targets are more successful at obtaining subsequent subsidies both in and out of subsidizing states. However, while firms’ success in meeting job targets is associated with an uptick in positive media coverage, this does not flow through to ESG ratings, even on scores specific to community impact. Our results should be of interest to both academics and policymakers interested in the design of state-level economic incentives.

Item Type: Article
Official URL: https://link.springer.com/journal/11142
Additional Information: © 2023 The Author(s)
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M14 - Corporate Culture; Social Responsibility
Date Deposited: 23 Aug 2023 14:45
Last Modified: 23 Feb 2024 23:21
URI: http://eprints.lse.ac.uk/id/eprint/120058

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