The Effects of Eligibility Criteria to Government Subsidies on Corporate Behaviours

Policy interventions such as taxation, subsidies, and accounting rules can incentivize firms to adopt certain behaviours to become eligible for preferential regimes. By categorizing firms as eligible and non-eligible, this thesis examines how the latter group may adjust their actions to appear compliant with benefit requirements. More in detail, focusing specifically on the New Sabatini program in Italy, this thesis assesses whether firms categorized as non-eligible engage in size management to qualify for the subsidy benefits, particularly those near the eligibility thresholds. In addition, this research explores the long-term effects of such adjustments on the firms' performance. Contrary to common findings in the literature, the results reveal that the New Sabatini program did not significantly drive bunching behaviour. Therefore, non eligible firms close to the threshold did not have a higher likelihood of obtaining the subsidy nor securing larger grant amounts, and no significant effects were observed on long-term performance metrics. This suggests that the New Sabatini's structure may not have been strong enough to encourage substantial financial adjustments, aligning with the program’s design, which only requires firms to meet thresholds at the application stage.