Government Subsidies and Operational Efficiency: Evidence From the United States

ABSTRACT In the United States, prior research links government subsidies to corporate misconduct and income smoothing, fueling debates over the elimination of these subsidies. Contrasting these findings, our study investigates the association between government subsidies and operational efficiency in US firms from 2004 to 2022, using data from the Subsidy Tracker database. We find a significant positive association between government subsidies and operational efficiency, suggesting that these subsidies enhance firms’ resource management and competitive positioning. Further analysis indicates that subsidies exert a more pronounced positive effect on firms with substantial R&D investments. Additionally, we find that government subsidies are positively related to corporate innovation activities and new hiring, highlighting the diverse benefits of subsidies in stimulating innovation and economic growth. This study provides essential insights into the potential of government subsidies as a strategic tool for enhancing operational efficiency, innovation, and employment within the corporate landscape.