Corporate Finance and the Governance Implications of Removing Government Support Programs

43 Pages Posted: 3 Nov 2015

See all articles by Martin Jacob

Martin Jacob

University of Navarra, IESE Business School

Sofia Johan

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

Denis Schweizer

Concordia University

Feng Zhan

Western University

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2015


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 (November 1, 2015). Journal of Banking and Finance, Forthcoming, Available at SSRN:

Martin Jacob

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa, FI-65101

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

Denis Schweizer (Contact Author)

Concordia University ( email )

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


Feng Zhan

Western University ( email )

1151 Richmond St
London, N6A 3K7

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