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Public cash and modes of firm exit

Author

Listed:
  • Jaka Cepec

    (University of Ljubljana)

  • Peter Grajzl

    (Lee University
    CESifo)

  • Barbara Mörec

    (University of Ljubljana)

Abstract

We investigate the importance of public cash for modes of firm exit. Drawing on data from Slovenia, we assemble a firm-level panel that combines comprehensive records on public-sector cash transactions to businesses with exit and other information on more than 59,000 Slovenian firms. We then estimate a series of cause-specific, discrete-time linear survival models while addressing endogeneity concerns. As hypothesized, received public cash exerts a robustly negative effect on the prospects of liquidation bankruptcy and voluntary liquidation, but not involuntary liquidation. We do not find robust evidence of an average effect of public cash on the likelihood of reorganization bankruptcy or firm merger or split-up, although estimates of dose response functions reveal important heterogeneity of effects by treatment intensity. Cash originating with different public-sector entities is fully fungible. Our analysis offers novel insights into the role of the public sector for firm dynamics.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:joevec:v:32:y:2022:i:1:d:10.1007_s00191-021-00754-3
    DOI: 10.1007/s00191-021-00754-3
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    Cited by:

    1. Peter Grajzl & Jaka Cepec & Barbara Mörec, 2023. "Weaned off public money: The effect of discontinued reception of public cash on firm outcomes," Kyklos, Wiley Blackwell, vol. 76(1), pages 41-76, February.

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    More about this item

    Keywords

    Public-sector cash; Firm exit; Bankruptcy; Non-bankruptcy exit; Firm dynamics;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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