The Ripple Effect: How Subsidies Transform Firm Behavior

Authors

• José Pérez-Amuedo, Marquette UniversityFollow
• M. Kabir Hassan, University of New Orleans
• Reza Houston, Ball State University

Document Type

Article

Publication Date

11-2025

Publisher

Elsevier

Source Publication

Journal of Corporate Finance

Source ISSN

0929-1199

Original Item ID

DOI: 10.1016/j.jcorpfin.2025.102880

Abstract

This study examines how government support influences firm behavior across profitability, investment, and employment. Using a comprehensive database linking local, state, and federal subsidies to firm-level financial data, we assess how different subsidy types shape firm decisions. We find that cost-reducing subsidies are more effective than revenue-increasing ones in boosting profitability, employment, and strategic investment. Firms that commit to hiring or capital investment upon receiving subsidies achieve superior outcomes. These findings highlight the importance of aligning subsidy design with firm-level incentives and broader economic goals.

Comments

Accepted version. Journal of Corporate Finance, Vol. 95 (November 2025). DOI. © 2025 Elsevier B.V. Used with permission.

Recommended Citation

Pérez-Amuedo, José; Hassan, M. Kabir; and Houston, Reza, "The Ripple Effect: How Subsidies Transform Firm Behavior" (2025). Finance Faculty Research and Publications. 170.
https://epublications.marquette.edu/fin_fac/170