Effectiveness of bailouts in the EU
Governments in the EU frequently bail out firms in distress by granting state aid. I use data from 86 cases during the years 1995-2003 to examine two issues: the effectiveness of bailouts in preventing bankruptcy and the determinants of bailout policy. The results are threefold. First, the estimated discrete-time hazard rate increases during the first four years after the subsidy and drops after that, suggesting that some bailouts only delayed exit instead of preventing it. The number of failing bailouts could be reduced if European control was tougher. Second, governmentsâ€™ bailout decisions favored state-owned firms, even though state-owned firms did not outperform private ones in the survival chances. Third, subsidy choice is an endogenous variable in the analysis of the hazard rate. Treating it as exogenous underestimates its impact on the bankruptcy probability. Several policy implications of the results are discussed in the paper.
|Date of creation:||Oct 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph P. Hughes & Loretta J. Mester, .
"A Quality and Risk-Adjusted Cost Function for Banks: Evidence on the "Too-Big-To-Fail" Doctrine,"
Rodney L. White Center for Financial Research Working Papers
25-92, Wharton School Rodney L. White Center for Financial Research.
- Joseph P. Hughes & Loretta J. Mester, 1991. "A quality and risk-adjusted cost function for banks: evidence on the " too-big-to-fail" doctrine," Working Papers 91-21, Federal Reserve Bank of Philadelphia.
- Glowicka, Ela, 2005.
"Bailouts in a common market: a strategic approach,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
177, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Bandopadhyaya, Arindam, 1994. "An Estimation of the Hazard Rate of Firms under Chapter 11 Protection," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 346-50, May.
- Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996.
"Time-consistent subsidies to unlucky firms,"
European Journal of Political Economy,
Elsevier, vol. 11(4), pages 619-634, April.
- Bruno Frey & Werner Pommerehne, 1982. "How powerful are public bureaucrats as voters?," Public Choice, Springer, vol. 38(3), pages 253-262, January.
- Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn.
- James J. Heckman, 2001. "Micro Data, Heterogeneity, and the Evaluation of Public Policy: Nobel Lecture," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 673-748, August.
- Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
- Jonathan Beck, 2004. "Fixed, Focal, Fair? Book Prices Under Optional Resale Price Maintenance," CIG Working Papers SP II 2004-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Rainer Nitsche & Paul Heidhues, 2006. "Study on methods to analyse the impact of state aid on competition," European Economy - Economic Papers 244, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Oscar Couwenberg, 2001. "Survival Rates in Bankruptcy Systems: Overlooking the Evidence," European Journal of Law and Economics, Springer, vol. 12(3), pages 253-273, November.
- Li, Kai, 1999. "Bayesian analysis of duration models: an application to Chapter 11 bankruptcy," Economics Letters, Elsevier, vol. 63(3), pages 305-312, June.
- Chiara Monfardini & Rosalba Radice, 2008. "Testing Exogeneity in the Bivariate Probit Model: A Monte Carlo Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 271-282, 04.
- Eric Maskin & Chenggang Xu, 2001.
"Soft budget constraint theories: From centralization to the market,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 9(1), pages 1-27, March.
- Maskin, Eric & Xu, Cheng-Gang, 2001. "Soft Budget Constraint Theories: From Centralization to the Market," CEPR Discussion Papers 2715, C.E.P.R. Discussion Papers.
- repec:dgr:rugsom:01e15 is not listed on IDEAS
- Roller, Lars-Hendrik & Zhang, Zhentang, 2005. "Bundling of social and private goods and the soft budget constraint problem," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 47-58, March.
- Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-27, May.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:176. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandra Frank)
If references are entirely missing, you can add them using this form.