DONG, QINGKAI, Raghunandan, Aneesh and Rajgopal. “When Do Firms Deliver on the Jobs They Promise in Return for State Aid?” Review of Accounting Studies, Forthcoming.

Abstract

US state governments frequently provide firms with targeted subsidies. In exchange, recipient firms promise to create or retain a certain number of jobs in the subsidizing state. In this paper, using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in the application process, (ii) the factors that determine which firms meet job creation targets, and (iii) the benefits to firms from meeting promised job targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 meet their ex-ante promised job creation targets. Firms with poorer labor practices are less likely to meet job 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-level 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 incentive programs.

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