Estimating the effects of public subsidies on the performance of supported enterprises across firm sizes

Abstract

Abstract Only a few studies consider heterogeneity in the effects of investment grants (subsidies) across firm size. Therefore, we investigate the effects of particular public policy on firm-level performance with a focus on firm size heterogeneity as an important determinant. We aim to investigate whether the larger-sized firms benefit from the direct financial assistance to a lesser extent when compared with micro- and small-sized firms. Specifically, we study the microeconomic effects of the Czech Operational Programme Enterprise and Innovation (OPEI) that was implemented during the period of 2007–13. Compared to previous studies, we work with a large firm-level dataset, consisting of 13,924 firms, of which 3,572 are supported firms (57% of beneficiaries of the OPEI programme). We implement the propensity score matching in combination with a difference in differences approach. We measure the overall financial performance of firms by using tangible fixed assets and their depreciation, sales, return on assets, and total factor productivity. While there are improvements in all evaluated indicators for microenterprises 2 years after the end of the programme, there are only minor positive effects of subsidies for larger enterprises.