Corporate Finance and the Governance Implications of Removing Government Support Programs

43 Pages Posted: 12 Jan 2014 Last revised: 30 Aug 2015

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Denis Schweizer

Concordia University

Feng Zhan

John Carroll University - Boler School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 29, 2015

Abstract

Governments worldwide spend trillions of dollars on business support programs. This article examines the implications to investors of phasing out one of these subsidy programs. Our setting takes advantage of a unique quasi-natural experiment, where tax subsidies for Canadian Labour-Sponsored Venture Capital Corporations (LSVCCs) were phased out in one province but not in others. Using a difference-in-differences setting, we show that fund performance — unrelated to the tax credit — decreased substantially following the enactment of the phase-out. We further show empirically that LSVCC managers continued to charge venture capital-like management fees, despite the fact that their investment strategies become more similar to mutual funds. Our data strongly support the idea that investors in companies and/or funds that unexpectedly lose government support face significant financial costs.

Keywords: Investment funds, Labour-Sponsored Venture Capital Corporations (LSVCCs), tax subsidies, value destruction

JEL Classification: G11, G18, G23, G24, H25, H71

Suggested Citation

Jacob, Martin and Johan, Sofia A. and Schweizer, Denis and Zhan, Feng, Corporate Finance and the Governance Implications of Removing Government Support Programs (August 29, 2015). TILEC Discussion Paper No. 2014-021. Available at SSRN: https://ssrn.com/abstract=2377456 or http://dx.doi.org/10.2139/ssrn.2377456

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Denis Schweizer (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Feng Zhan

John Carroll University - Boler School of Business ( email )

University Heights, OH 44118-4581
United States

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