2014 Theses Doctoral

Three Essays on the Political Economy of Corporate Bailouts

Smith, Michael

This dissertation is comprised of three papers exploring the causes of the likelihood and distribution of corporate bailouts. The first paper explores why some distressed firms receive bailouts while others do not. It argues that political partisanship plays a key role: left-wing governments are more likely to authorize bailouts on average, and are particularly more likely to save employee-rich firms. The theory is tested using a new dataset comprised of financially distressed firms, a subset of which receive bailouts. The second paper examines why bailouts are concentrated in a particular subset of industrial sectors. The primary argument is again political partisanship: left-wing governments seek to protect firms in sectors that have the most employees. Alternative explanations, including the impact of globalization and alternative forms of social protection, are also considered. The theory is shown to hold using a new dataset comprised of comprehensive counts of bailouts by sector across the European Economic Area. The final paper examines the nature of public opinion regarding bailouts. The paper undermines the standing assumption that bailouts are largely unpopular by instead showing that public support varies by context and is in some instances supportive. Using observational data in conjunction with survey experiments, individual characteristics, including partisanship and material self-interest, as well as firm-specific characteristics, including the relevance of the firm to the national economy, are shown to drive public support for bailouts.