Public cash and modes of firm exit

Cepec, Jaka; Grajzl, Peter; Mörec, Barbara

doi:10.1007/s00191-021-00754-3

Cited by 2 publications

(3 citation statements)

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“…But weaning‐off could conceivably also shape the prospects of firm survival. Cepec et al (2022) show that the volume of received public cash is a statistically significant predictor of different firm exit routes. Our focus on surviving businesses will yield consistent estimates of the treatment effects of interest if, conditional on the full set of observable covariates, there is no correlation between any remaining unobservables that independently affect the changes in investigated firm outcomes and the unobservables that predict firm survival.…”

Section: Empirical Approachmentioning

confidence: 99%

“…Conventional datasets do not possess this property; for example, even in datasets documenting comprehensive firm reception of public subsidies or grants (see, e.g., Kölling, 2015), discontinued reception of nonreciprocal public transfers may coincide with an unobserved increase in the firm's inflow of cash from public procurement. Indeed, in the only existing contribution that has examined linked public cash-firm data analogous to ours, Cepec et al (2022) study the role of the volume of received public cash as a determinant of various modes of firm exit. 4 The present paper differs from Cepec et al's investigation in that we focus on the weaning-off effects, explore a broad range of outcomes for the observed businesses, and apply substantially different empirical methodology.…”

Section: Introductionmentioning

confidence: 99%

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Weaned off public money: The effect of discontinued reception of public cash on firm outcomes

Grajzl

Cepec

Mörec

2022

Kyklos

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Given the large footprint of the public sector in modern capitalist economies, many businesses are recipients of public money. But how are recipient firms impacted when they are weaned off public money? Drawing on unique data from Slovenia, we assemble a firm‐level panel linking comprehensive records on public‐sector cash transactions to businesses with detailed annual information on more than 72,000 firms observed between 2015 and 2019. To address endogeneity, we combine matching with difference‐in‐differences estimation. Weaning‐off on average fundamentally disrupts a firm's production and organization, causing a marked decline in output, total assets, and input use, as well as a decrease in productivity and export proclivity. Several effects of weaning‐off are contingent on firm age. Younger firms undergo comparatively stronger effects on production operations, but, interestingly, only older firms experience negative effects on productivity and liquidity. Estimated aggregate value‐added losses incurred by treated firms fall short of the total amount of public money disbursed to those firms. Thus, from a normative standpoint, diminished transactional involvement of the public sector with firms could potentially generate net social gains. Our analysis offers a new perspective on the repercussions of public sector's involvement in the economy.

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Section: Empirical Approachmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Weaned off public money: The effect of discontinued reception of public cash on firm outcomes

Grajzl

Cepec

Mörec

2022

Kyklos

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“…In 2020 the world was affected by the coronavirus (so-called Covid-19) pandemic, which has become a negative external shock, reshaping the economies and the ways how the business was made, including shutting down existing companies, exploring new business opportunities and setting up new ventures (Donthu and Gustafsson, 2020; Anker, 2021; Ivanov, 2021; Caiazza et al ., 2021; Kuckertz et al ., 2020; Brixiová et al ., 2020; Dvouletý et al ., 2021a; Davidsson et al ., 2021; Cepec et al ., 2022; Khlystova et al ., 2022; Koładkiewicz et al ., 2022; Cowling et al ., 2022). Each country has coped with the pandemic crisis uniquely, and this study aims to contribute to this ongoing scholarly discussion by providing insights from the context of the UK.…”

Section: Introductionmentioning

confidence: 99%

Who is brave enough to start a new business during the Covid-19 pandemic?

Cowling

Dvouletý

2023

BJM

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PurposeSince introducing the UK start-up loan (SUL) Scheme in 2012, 82,809 new start-ups have been supported with loans totalling £759m. Even during the Covid-19 crisis, new business start-ups supported by SUL did not abate. The authors ask whether the entrepreneurs starting businesses during the Covid-19 crisis were different from those becoming entrepreneurs before the pandemic. This paper aims to discuss the aforementioned question.Design/methodology/approachThe authors model the differences between pre-Covid-19 business start-ups and Covid-19 start-ups. The administrative data obtained from the UK Government Department for Business, Energy and Industrial Strategy (BEIS) represent information about individual loan records for 82,798 individuals and total lending of £759m between 2012 and 2021. The probit regression model with dependent variable coded one if the start occurred after February 2020 and zero between 2012 and February 2020, was estimated.FindingsThe study’s findings show that both groups of entrepreneurs differ in many facets. The new Covid-19 entrepreneurs are older, more likely to have a graduate-level education and are significantly more likely to make this transition from full-time waged employment or inactivity. Furthermore, they are more likely to set up in manufacturing industries at the business level than their pre-Covid-19 counterparts who favoured service sectors. Finally, their initial lending to support the start-up is much higher.Originality/valueThis study provides value for the policymakers responsible for the administration of the SUL scheme, and it also contributes to the body of knowledge on the effects of the global Covid-19 pandemic.

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Public cash and modes of firm exit

Cited by 2 publications

References 54 publications

Weaned off public money: The effect of discontinued reception of public cash on firm outcomes

Weaned off public money: The effect of discontinued reception of public cash on firm outcomes

Who is brave enough to start a new business during the Covid-19 pandemic?

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