This study examines how government support influences firm behavior across profitability, investment, and employment. Using a comprehensive database linking local, state, and federal subsidies to firm-level financial data, we assess how different subsidy types shape firm decisions. We find that cost-reducing subsidies are more effective than revenue-increasing ones in boosting profitability, employment, and strategic investment. Firms that commit to hiring or capital investment upon receiving subsidies achieve superior outcomes. These findings highlight the importance of aligning subsidy design with firm-level incentives and broader economic goals.

This study examines how the appointment of former politicians and regulators to boards of directors or management teams influences corporate acquisition activity and performance. We find that bidders with political connections are more likely to acquire targets and avoid regulatory delay or denial. The merger premium paid increases with political connectedness. The announcement period returns show that investors recognize that bids by politically connected acquirers are more likely to create firm value. Connected bidders make more bids and bid on larger targets. Connected acquirers also enjoy superior post-merger financial and operating performance.

In this study, we examine the impact of class action litigation shocks on corporate innovation. Our experimental design is based on an unanticipated court ruling that reduces the risk of shareholder class action lawsuits for firms located within the jurisdiction of the US Ninth Circuit. Innovation output by firms headquartered in this area increased significantly after this decision compared with that of firms elsewhere. This result is consistent with our trading hypothesis, which states that the threat of litigation leads to managerial myopia. The increase in innovation is more pronounced at high-tech firms and firms operating in a competitive environment. Other measures of ex ante litigation risk indicate that firms with the greatest litigation risk experience the greatest increase in innovation after this decision. We conclude that a reduction in the threat of class action litigation leads firms to increase innovation.