Research at KU Leuven suggests that politically connected companies received more funding during the Great Recession

Historically, little academic research has been done on direct financial assistance to firms during financial crises. For example, the financial crisis of 2008-2009 mainly supported banks. The Covid period is characterized by government support for companies, but there is still too little data to analyze the period.

To study this phenomenon on a larger scale, the researchers went back to the Great Depression in the United States. The researchers relied on data from 1927 to 1939. With public data on the liabilities and equity of railway companies, decisions can be made about their profitability before and after receiving government support. The purpose of this aid was to make the companies more profitable. Also taken into account was the question of whether employment increased as a result of the bailout, a second major goal of then US President Herbert Hoover.

“Our research shows that companies with political connections received more support than companies without, but were in a worse position,” says Gertjan Verdict (KU Leuven), researcher and lecturer in financial economics. “Furthermore, we find no evidence that employment or corporate profits have increased as a result of government support. Corporate debt ratios appear to be declining.”