Voters, Bailouts, and the Size of the Firm

Schilling, Linda (2023): Voters, Bailouts, and the Size of the Firm.

Abstract

I present a political economic theory, explaining bailouts for failing firms in the presence of non-voters (foreigners). The governing politician uses the bailout as a tool to sway voters for maximizing re-election chances. Bailouts partially leak to foreigners at the firm and are also financed by tax-paying foreigners outside the firm. I show, larger failing firms are granted larger bailouts even if the additional size is due to having more foreign stakeholders (``too-big-to-fail- lookalike''). Yet, among equally sized firms, the firm with more voting-stakeholders receives the larger bailout, contradicting social optimality. Besides firm size, also voting rights cause bailouts.

• Item Type: MPRA Paper
• Language: English
• Keywords: political finance, bailouts, economic voting, probabilistic voting, vote-share maximization, too-big-to-fail, socially optimal bailouts, partial suffrage
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation; G - Financial Economics > G3 - Corporate Finance and Governance > G35 - Payout Policy; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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