Government Subsidies and Corporate Misconduct

Abstract

I study whether firms that receive targeted U.S. state-level subsidies are more likely to subsequently engage in corporate misconduct that harms consumers, employees, and the environment. 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 impacts the very stakeholders subsidies are ostensibly intended to benefit.

Keywords: subsidies, nonfinancial misconduct, violations, Violation Tracker, Subsidy Tracker