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Voters, Bailouts, and the Size of the Firm

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  • Schilling, Linda

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.

Suggested Citation

  • Schilling, Linda, 2023. "Voters, Bailouts, and the Size of the Firm," MPRA Paper 118146, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118146
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    References listed on IDEAS

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    More about this item

    Keywords

    political finance; bailouts; economic voting; probabilistic voting; vote-share maximization; too-big-to-fail; socially optimal bailouts; partial suffrage;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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