Public cash and modes of firm exit

• Published in: Journal of evolutionary economics Vol. 32; no. 1; pp. 247 - 298
• Main Authors: Cepec, Jaka, Grajzl, Peter, Mörec, Barbara
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 2022; Springer Nature B.V
• Subjects: Bankruptcy; Datasets; Economic Growth; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Entrepreneurship; Institutional/Evolutionary Economics; Microeconomics; Prospects; Public sector; R & D/Technology Policy; Regular Article; Reorganization; Transactions; Voluntariness; P12; H32; G33; Firm dynamics; Public-sector cash; G34; K22; Firm exit; Non-bankruptcy exit; Bankruptcy; L25
• ISSN: 0936-9937; 1432-1386
• DOI: 10.1007/s00191-021-00754-3

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.