Abstract
AbstractThe literature reports mixed findings on the role of government intervention, even during times of crisis. The recent Covid‐19 pandemic damaged the financial health of many small firms. This study examines whether government subsidies are associated with bankruptcy rates for firms with deteriorating financial health. Using a sample of 18,422 firms from 44 countries, we estimate a logistic model that accounts for rare events. Results indicate that those firms which receive government support are more likely to be associated with insolvency, even in the absence of liquidity issues and overdue financial obligations. Policy implications are discussed.
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