Who Gets a Lifeline? A Political Economy of Corporate Bailouts
Year: 2012
Type: preprint
Abstract: Why do some governments opt to provide firms that face bankruptcy with a bailout while others allow the firms to fail? I consider three explanations of bailout provision: one that focuses on the systemic risk posed by the failure of large financial firms, another that examines the conditions under which policymakers are most likely to acquiesce to demands made by the special interests that are directly harmed by the failure of the firm, and a third that highlights the role of the partisan orientation of policymakers in impacting the likelihood of a bailout being given as well as the kinds of firms that receive bailouts. To test these three explanations, I construct a new dataset of 597 financially distressed firms located in 49 countries between the years of 1987 and 2010 that includes firms operating in a wide array of industries by means of media keyword searches. I find evidence in support of the systemic risk and partisanship explanations of bailout provision. Larger firms and firms operating in the financial sector are shown to be more likely to receive bailouts. Further, right-wing governments are 12% less likely to provide a bailout than other kinds of governments, and the positive impact of left-wing governance on bailouts is increasing in the number of employees in a firm.
Source: SSRN Electronic Journal
Author: Michael G. Smith
Institution: Columbia University
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2276248771