Government Subsidies and Corporate Misconduct

Forthcoming, Journal of Accounting Research

65 Pages Posted: 13 Sep 2017 Last revised: 26 Apr 2024

Date Written: April 26, 2024

Abstract

I study whether firms that receive targeted U.S. state-level subsidies are more likely to subsequently engage in corporate misconduct. I find that firms are more likely to engage in misconduct in subsidizing states, but not in other states that they operate in, after receiving state subsidies. Using data on both federal and state enforcement actions, and exploiting the legal principle of dual sovereignty for identification, I show that this finding reflects an increase in the underlying rate of misconduct and that this increase is attributable to lenient state-level misconduct enforcement. Collectively, my findings present evidence of an important consequence of targeted firm-specific subsidies: non-financial misconduct that potentially could impact the very stakeholders subsidies are ostensibly intended to benefit.

Keywords: subsidies, corporate misconduct, political connections, Violation Tracker

JEL Classification: D72, H25, H71, M14, M41

Suggested Citation

Raghunandan, Aneesh, Government Subsidies and Corporate Misconduct (April 26, 2024). Forthcoming, Journal of Accounting Research, Available at SSRN: https://ssrn.com/abstract=3035254 or http://dx.doi.org/10.2139/ssrn.3035254

Aneesh Raghunandan (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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