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Subsidy-driven firm growth: does loan history matter? Evidence from a European Union subsidy program

Goel, Tirupam, Telegdy, Álmos, Banai, Ádám and Takáts, Előd (2024) Subsidy-driven firm growth: does loan history matter? Evidence from a European Union subsidy program. Journal of Corporate Finance, 87. ISSN 0929-1199

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Identification Number: 10.1016/j.jcorpfin.2024.102592


Subsidies should target firms with profitable opportunities and insufficient funding, but this is difficult due to information asymmetry between firms and the government. We study how credit history of firms can help design more efficient subsidies. To this end, we combine data on non-repayable firm subsidies and the credit registry from Hungary. Using subsidy winners and losers as treated and control groups and leveraging variation in access to loans, we identify the differential impact of subsidies. While subsidies lead to an incremental impact on assets of loan-deprived as compared to loan-acquiring firms, the impact is transitory and fades after a few years. The impact on profitability follows a similar pattern despite the higher expected marginal value of capital for loan-deprived firms. Thus, loan deprivation is likely caused by borrower shortcomings instead of credit rationing by banks. In such cases, subsidies need not target loan-deprived firms.

Item Type: Article
Official URL:
Additional Information: © 2024 Published by Elsevier B.V.
Divisions: School of Public Policy
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Subjects: H Social Sciences > HG Finance
H Social Sciences > HF Commerce
JEL classification: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm
G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Date Deposited: 03 Jun 2024 15:18
Last Modified: 16 Jul 2024 03:18

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