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Public cash and modes of firm exit

Jaka Cepec (), Peter Grajzl () and Barbara Mörec ()
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Jaka Cepec: University of Ljubljana
Barbara Mörec: University of Ljubljana

Journal of Evolutionary Economics, 2022, vol. 32, issue 1, No 9, 247-298

Abstract: Abstract 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.

Keywords: Public-sector cash; Firm exit; Bankruptcy; Non-bankruptcy exit; Firm dynamics (search for similar items in EconPapers)
JEL-codes: G33 G34 H32 K22 L25 P12 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00191-021-00754-3

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