Why do governments sometimes allow for firms to fail and other times directly intervene in order to avoid bankruptcy? My dissertation seeks to answer this question by highlighting the role of electoral incentives and the partisan preferences of officials in informing the decision to authorize bailouts as well as which kinds of firms are saved. The dissertation, which can be accessed online at Columbia University's Academic Commons, is comprised of three separate papers:
The first paper, titled Who Gets a Lifeline? The Political Economy of Corporate Bailouts, explores why some governments opt to provide firms that face bankruptcy with a bailout while others allow the firms to fail. Three explanations of bailout provision are considered: one that focusses on the systemic risk posed by the failure of large financial firms, another that examines the conditions under which policymakers are most likely to acquiesce to demands made by the special interests that are directly harmed by the failure of the firm, and a third that highlights the role of the partisan orientation of policymakers in impacting the likelihood of a bailout being given as well as the kinds of firms that receive bailouts. To test these three explanations, a new dataset of financially distressed firms, a portion of which receive bailouts, is employed. The sample of firms spans numerous countries and industries, moving beyond existing work that only looks at financial bailouts. The paper finds evidence in support of the systemic risk and partisanship explanations of bailout provision. Larger firms and firms operating in the financial sector are shown to be more likely to receive bailouts. Further, left-wing governments are not only more likely to authorize bailouts than governments of different partisan orientations, the positive impact of left-wing governance is increasing in the number of employees in a firm. Data collection was facilitated by a research grant awarded by the Columbia Center for International Business Education Research and previous versions of the paper have been presented at the 2012 IPES conference and at NYU's Alexander Hamilton Center.
The second paper, titled Picking Winners by Saving Losers: Partisanship and the Sectoral Allocation of Corporate Bailouts, further examines the role of partisanship in the distribution of corporate bailouts. Again highlighting the role of electoral constituencies in informing policymakers' preferences, I argue that left-wing governments will be most interested in providing support to sectors of the economy that are labor-rich while right-wing governments will be most interested in supporting sectors that are capital-rich. The paper further explores the role of globalization and social protection in causing bailouts. Increased flows of trade and capital are hypothesized as increasing the likelihood that bailouts occur by way of increased economic dislocation and volatility. Foreign direct investment, however, can serve as a substitute to bailouts, if it comes in the form of an acquisition of a distressed firm. Further, social protection, including insurance against labor market risk and industrial subsidization, might lower the likelihood of bailouts by insulating firms from failure and by lowering the costs associated with unemployment. To empirically assess these claims, I construct a second original dataset comprised of annual counts of bailouts by industry across the European Economic Area, 1999-2011. Left-wing governments are shown to provide more bailouts to sectors of the economy with the largest share of employment. The finding holds while controlling for the alternative explanations of the sectoral distribution of bailouts. A working draft of this paper was presented at the 2013 APSA conference.
The third paper, titled Predicting Public Support for Corporate Bailouts, seeks to portray the costs and benefits policymakers face at the ballot box when deciding whether or not to provide ailing firms with a lifeline. The paper first describes the contours of public opinion across a number of bailouts using existing German and American survey data. Not only is the common assumption that bailouts are universally unpopular upended, but support is also shown to vary along partisan and ideological lines, with liberal respondents and supporters of left-leaning parties expressing lower levels of opposition. Next, original survey experiments are used to examine why the the public supports some bailouts more than others. I find that respondent support for bailouts varies positively with the culpability of the firm for its own plight, and that left-leaning respondents are more sympathetic to bailouts that are framed as avoiding job losses rather than damage to the stock market. Surprisingly, respondents express no greater sympathy for firms with higher numbers of employees.