Public Policies and Firms’ Sustainability: A long-term mortality analysis of subsidized firms in rural areas

Abstract

Studies have demonstrated that public policies to support private firms’ investment have the ability to promote entrepreneurship, but the sustainability of subsidized firms has not been greatly analyzed. This paper aims to examine this dimension specifically through evaluating the mortality of subsidized firms in the long-term. The analysis focuses on a case study of the LEADER+ Programme in the Alentejo region of Portugal. To this end, we examined the activity status (active or not active) of 154 private, rural for-profit firms in Alentejo that had received a subsidy to support investment between 2002 and 2008 under the LEADER+ Programme. The methodology is based on binary choice models in order to study the probability of these firms still being active. The explanatory variables used are characteristics of managers’ strategic decisions, firm profile and regional economic environment. Data assessment showed that the cumulative mortality rate of firms on 31st December 2013 is over 20%. Interpretation of the regression model revealed that the probability of firms’ survival increases with higher investment, firm age and regional business concentration. On the other hand, the number of applications made by firms has a negative impact on their survival. These conclusions may be particularly useful for policy-makers because the study suggests that, among other factors, limiting the number of applications to a public policy to support investment by the same firm could maximize the perpetuity of its results in the long term.