When do firms deliver on the jobs they promise in return for state aid?

Qingkai Dong, Aneesh Raghunandan () and Shivaram Rajgopal
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Qingkai Dong: Hong Kong University of Science and Technology
Aneesh Raghunandan: London School of Economics
Shivaram Rajgopal: Columbia Business School

Review of Accounting Studies, 2024, vol. 29, issue 4, No 18, 3633-3678

Abstract: Abstract US state governments frequently provide firms with targeted subsidies. In exchange, recipients promise to create or retain a certain number of jobs in the subsidizing state. Using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in their applications, (ii) the factors that determine which firms meet the targets, and (iii) the benefits to firms from meeting those targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 meet their promised job creation targets. Firms with poorer labor practices are less likely to meet their targets, as are politically connected firms that receive subsidies in election years. Conversely, promised job targets are also more likely to be met for subsidies accompanied by government press releases but less likely to be met for subsidies accompanied by firm press releases; the latter likely reflects the fact that firms put out press releases for larger subsidies with more ambitious job targets. In terms of consequences, firms that meet job targets are more successful at obtaining subsequent subsidies both in and out of subsidizing states. However, while firms’ success in meeting job targets is associated with an uptick in positive media coverage, this does not flow through to ESG ratings, even on scores specific to community impact. Our results should be of interest to both academics and policymakers interested in the design of state-level economic incentives.

Keywords: Subsidies; Political connections; Transparency; Job creation; Labor practices; Stakeholders; ESG (search for similar items in EconPapers)
JEL-codes: D72 H25 H71 M14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-023-09804-6

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