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Is Subsidizing Companies in Difficulties an Optimal Policy? An Empirical Study on the Effectiveness of State Aid in the European Union

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  • Nulsch, Nicole

Abstract

Even though state aid in order to rescue or restructure ailing companies is regularly granted by European governments, it is often controversially discussed. The aims for rescuing companies are manifold and vary from social, industrial and even political considerations. Well-known examples are Austrian Airlines (Austria) or MG Rover (Great Britain). Yet, this study aims to answer the question whether state aid is used effectively and whether the initial aim why aid has been paid has been reached, i.e. the survival of the company. By using data on rescued companies in the EU and applying a survival analysis, this paper investigates the survival rates of these companies up to 15 years after the aid has been paid. In addition, the results are compared to the survival rates of non-rescued companies which have also been in difficulties. The results suggest that despite the financial support, business failure is often only post-poned; best survival rates have firms with long-term restructuring, enterprises in Eastern Europe, smaller firms and mature companies. However, non-funded companies have an even higher ratio to go bankrupt.

Suggested Citation

  • Nulsch, Nicole, 2014. "Is Subsidizing Companies in Difficulties an Optimal Policy? An Empirical Study on the Effectiveness of State Aid in the European Union," IWH Discussion Papers 9/2014, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-9-14
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    Cited by:

    1. Heim, Sven & Hüschelrath, Kai & Schmidt-Dengler, Philipp & Strazzeri, Maurizio, 2017. "The impact of state aid on the survival and financial viability of aided firms," European Economic Review, Elsevier, vol. 100(C), pages 193-214.
    2. European Commission, Directorate-General for Competition (Brussels) (ed.), 2016. "Ex-post evaluation of the impact of restructuring aid decisions on the viability of aided (non-financial) firms: Final report," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 130514.

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    More about this item

    Keywords

    European competition policy; state aid; firm survival; survival analysis; control group;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other

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