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Do government subsidies undermine organizational resilience? Evidence from stock price reactions to the COVID-19 pandemic

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  • Wei, Jiuchang
  • Chen, Changchun
  • Leng, Tiecheng
  • Zhang, Li

Abstract

Can government subsidies always enhance organizational resilience? While prior literature often assumes subsidies stabilize firms, we challenge this view. Leveraging stock market reactions to the COVID-19 pandemic, we examine the effect of government subsidies using data from China's National Technological Innovation Demonstration Enterprises. We find that subsidized firms experience larger stock price declines and slower recoveries during the pandemic, indicating reduced resilience. Mechanism tests show subsidies fuel over-investment, which undermines firms' adaptive capacity in the face of uncertainty. These findings offer timely insights for policymakers seeking to refine subsidy allocation mechanisms and improve the effectiveness of government subsidies.

Suggested Citation

  • Wei, Jiuchang & Chen, Changchun & Leng, Tiecheng & Zhang, Li, 2026. "Do government subsidies undermine organizational resilience? Evidence from stock price reactions to the COVID-19 pandemic," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325003876
    DOI: 10.1016/j.econmod.2025.107392
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    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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