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Financial Constraints: State Aid to the Rescue? Empirical Evidence from Belgian Firm-Level Data

Author

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  • Ilona Sergant

    (KU Leuven)

  • Patrick Cayseele

    (KU Leuven)

Abstract

This paper investigates the relationship between State aid measures, as defined by Article 107 of the Treaty on the Functioning of the European Union (TFEU), and firm performance in terms of total factor productivity (TFP). Under imperfect capital markets, firms might encounter difficulties in accessing sufficient resources to fund their optimal investment plans. The main focus of this paper lies in establishing whether State aid alleviates a firm from such constraints, and thereby enhances its productivity. To this end, we include all State aid cases that were active in Belgian manufacturing between 2003 and 2012. To determine the effects of State aid and financing constraints on performance, we first estimate TFP and classify firms according to their financial health in the absence of aid. The main results confirm the hypothesis, but when allowing for firm heterogeneity, a mitigating role for State aid is only present for initially well-performing firms.

Suggested Citation

  • Ilona Sergant & Patrick Cayseele, 2019. "Financial Constraints: State Aid to the Rescue? Empirical Evidence from Belgian Firm-Level Data," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 33-67, March.
    • Handle: RePEc:kap:jincot:v:19:y:2019:i:1:d:10.1007_s10842-018-0277-4
    DOI: 10.1007/s10842-018-0277-4
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    2. Jaka Cepec & Peter Grajzl & Barbara Mörec, 2022. "Public cash and modes of firm exit," Journal of Evolutionary Economics, Springer, vol. 32(1), pages 247-298, January.
    3. Tomaso Duso & Mattia Nardotto & Jo Seldeslachts, 2021. "A Retrospective Study of State Aid Control in the German Broadband Market," Discussion Papers of DIW Berlin 1931, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Total factor productivity; Financial constraints; Manufacturing; State aid;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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