Do Public Subsidies Affect the Performance of New Technology-Based Firms? The Importance of Evaluation Schemes and Agency Goals

Prometheus 30(1), 97-111.

30 Pages Posted: 1 Mar 2011 Last revised: 4 Jun 2012

See all articles by Luca Grilli

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering

Samuele Murtinu

Utrecht University - School of Economics

Date Written: July 21, 2011

Abstract

New Technology-Based Firms (NTBFs) greatly contribute to the dynamic efficiency of the economic system. To perform this role, NTBFs need external financing. However, private financing towards this typology of firms is particularly subject to market inefficiencies. This opens up the way to a policy intervention, and NTBFs often find support through the pay out of public direct subsidies. When it is based on ex-ante selective screening procedures of the applicants and awarded on a competitive basis, direct public support may exert a positive effect on NTBFs’ performance beyond the amount of the subsidy. Governments, by picking promising business projects, may signal to third parties the high quality of a firm lowering information asymmetries between firms and potential partners or private investors. We contribute to the extant literature on the impact of different types of subsidy on firm performance by crossing the 'evaluation dimension' (i.e. selective vs. automatic subsidies) with the dimension of the specific goal (R&D-enhancing vs. other measures) for which a subsidy is implemented. Our results show that: i) the evaluation mechanism and the goal of the subsidy are both important dimensions in the policy design domain ii) selective R&D subsidies outperform other typologies of schemes in fostering NTBFs’ performance.

Keywords: New technology-based firms, total factor productivity, public subsidies

JEL Classification: L26, L53, O38

Suggested Citation

Grilli, Luca and Murtinu, Samuele, Do Public Subsidies Affect the Performance of New Technology-Based Firms? The Importance of Evaluation Schemes and Agency Goals (July 21, 2011). Prometheus 30(1), 97-111., Available at SSRN: https://ssrn.com/abstract=1772962

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

Samuele Murtinu (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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