Does the visible hand make firms more visible? : the effect of government subsidies on corporate disclosure



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Using a novel dataset that tracks government subsidies granted to individual firms, I provide the first large-sample evidence on the relation between government subsidy and firm disclosure. I find that relative to unsubsidized firms, subsidized firms provide more voluntary disclosures of general information about their profitability and business activities, a basis for subsidy program justification, as well as more disclosures related to the goals of subsidies such as increasing capital investments and creating jobs, information useful for analyzing how taxpayers’ money is used in the public interest. Further, I find these effects are stronger for firms headquartered in states where politicians reveal a stronger preference for subsidy transparency, and for firms that are more likely to attract public scrutiny. Collectively, these results suggest that subsidized firms voluntarily increase their disclosures to help politicians fulfill their public accountability for relationship building, and also to lower their own costs related to public scrutiny.



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