Public financial support and firm-specific characteristics: evidence from Portugal

ABSTRACT

This paper analyses the underlying factors explaining a firm’s use of public financial support and possible misalignments between policy goals and the characteristics of firms holding a public grant. Using firm-level data for a sample of Portuguese manufacturing firms over the 2006–2013 period, we investigate how public financial support at the firm level is related to observable firm’s characteristics. Our findings suggest that firms lacking resources, capabilities and international involvement seem to be those with great barriers to use public financial support. Therefore, it cast doubts on the efficiency of public financial support programmes aiming to mitigate market failures, by assisting constrained firms. In turn, public financial support seems to boost market selection mechanisms by favouring ‘good’ firms and pushing less-endowed firms outside the market.

KEYWORDS:

• Subsidies
• firms’ characteristics
• manufacturing firms
• Portugal

JEL CODES:

• H25
• H81
• H32
• L60

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Since 1985, the Portuguese Ministry of Employment carry out annually a comprehensive survey covering all firms and plants employing paid labour (either permanent or temporary workers). Given its compulsory nature, this database – Quadros de Pessoal – represents the population of Portuguese manufacturing firms. See, for instance, Barbosa and Eiriz (2011) for the population distribution of firms based on Quadros de Pessoal.

Additional information

Funding

This work was carried out within the funding with COMPETE reference n° POCI-01-0145-FEDER-006683 (UID/ECO/03182/2013), with the FCT/MEC’s (Fundação para a Ciência e a Tecnologia, I.P.) financial support through national funding and by the ERDF through the Operational Programme on ‘Competitiveness and Internationalization – COMPETE 2020 under the PT2020 Partnership Agreement’.