When Do Firms Deliver on the Jobs They Promise in Return for State Aid?

60 Pages Posted: 31 Oct 2022

See all articles by Qingkai Dong

Qingkai Dong

Columbia University

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: May 31, 2022

Abstract

US state governments frequently provide firms with targeted subsidies. In exchange, recipient firms promise to create or retain a certain number of jobs in the subsidizing state. In this paper, using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in the application process, (ii) the factors that determine which firms meet job creation targets, and (iii) the benefits to firms from meeting promised job targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 actually meet their ex-ante promised job creation targets. Firms with poorer labor practices are less likely to meet job targets, as are politically connected firms that receive subsidies in election years. Conversely, promised job targets are more likely to be met for subsidies accompanied by government press releases, highlighting potential signaling by awarding governments. In terms of consequences, firms that meet job targets are more successful in obtaining subsequent subsidies both in- and out- of subsidizing states and are more likely to make subsequent political contributions in subsidizing states. However, firms’ success in meeting job targets is not rewarded by ESG rating agencies, even on scores specific to community impact. Our results should be of interest to both academics and policymakers interested in the design of state-level economic incentive programs.

Keywords: subsidies, political connections, transparency, job creation, labor practices, stakeholders, ESG

JEL Classification: H25, H71, M41, M14, G32

Suggested Citation

Dong, Qingkai and Raghunandan, Aneesh and Rajgopal, Shivaram, When Do Firms Deliver on the Jobs They Promise in Return for State Aid? (May 31, 2022). Available at SSRN: https://ssrn.com/abstract=4255259 or http://dx.doi.org/10.2139/ssrn.4255259

Qingkai Dong

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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