Are we Taking Grants for Granted? An Empirical Study on the Impact of Government Grants on Firm Performance.
MetadataShow full item record
Government grants from Innovation Norway do not help firms in terms of better performance, in fact, the results of this study suggest the opposite. Previous literature has found that government grants have a positive impact on some firm performance metrics. However, there has been inadequate research on the topic, and more distinctly, in a Norwegian context. This paper aims to investigate the relationship between firm performance and government grants. In particular, we ask the following research question: “What is the impact of government grants on firm performance?”. In this context, our study accounts for both the treatment and untreated group of those who seek government grants. We examine whether grants are positively linked to performance, as measured by return on assets, return on sales, total debt to asset ratio and total labor productivity. In addition, we investigate whether entrepreneur characteristics such as gender and age impact the performance metrics. Further, firm characteristics, such as industry of operation and firm age, are added as control variables to strengthen the results. We use multiple regression analysis to examine the relationship between performance and grants. The empirical study is based on five-year financial accounting data from 1,449 firms seeking government grants in 2016. Our study also controls for potential explanatory variables introduced by literature. The results indicate no significant relationship between grants and performance. We also controlled for firm and entrepreneur characteristics, but we found no evidence that government grants significantly impact firm performance.