At the beginning of 1986, the Italian Parliament issued Act 44, a start up programme meant to favour the creation of new firms located in Southern Italy regions and managed by young local entrepreneurs (not more than 35 years old).
According to the law, the newborn firms admitted to the programme may benefit by three different kinds of subsidies, all simultaneously available: a subsidy up to 60% of the initial investment, a loan granted at an interest rate equal to 30% of the market rate and (for the first three years of life) an additional subsidy covering a share of variable costs. With Act 44, the Italian policy maker tried to employ an instrument of development widely used in all EU countries, and forcefully more important in a country where the weight of small and medium sized firms has always been particularly relevant.
It is therefore little surprising that the application of Act 44 has, during the last decade, generated a lively discussion on the effectiveness of the programme with very different points of view, ranging from enthusiasm to sharp criticism. Rather than assessing the policy effectiveness by looking at the possible macroeconomic impact of Act 44 on the favoured areas, the literature has more reasonably preferred to approach the problem of evaluating the start up programme focusing on the features of the new firms and often comparing “subsidized” and “spontaneous” (or “natural”) firms (i.e. firms born without subsidies), by studying their overall performances or alternatively by referring to a single variable representing in some way the “successfullness” of the firm.
The works of MAGGIONI, 1997 and 1998, offer probably the most complete picture of the firms born thanks to Act 44. They point out their main distinctive features with respect to natural firms: high survival rate, small size in terms of employees and revenues, technologically advanced plants and equipment, high debt/equity ratios, large initial investments and, above all, a satisfying overall performance in terms of cash flow, return and especially in terms of market penetration and dimensional growth. This positive judgement is shared by other authors such as BORRELLI and SCALA, 1996, while more critical are the conclusions of IZZO and MARCHI, 1995 who highlight the low degree of innovation and the poor management abilities of the new young entrepreneurs.
Other works focus on life duration as a proxy for the subsidized firm successullness and therefore for the policy effectiveness. In this stream, MARIANI and THOMAS, 1997 study the factors affecting the survival of industrial firms financed by Act 44, while BATTISTIN et al, 1998 seriously question the effectiveness of the programme on the basis of the evidence that after 30 months (i.e. the period in which most of subsidies are actually payed) the survival probability of subsidized firms is not higher than the one of natural firms.
This paper takes on the latter approach focusing on firms’ life duration. Its main target is that of identifying the main factors affecting death probability in a sample of firms born within a start up programme. In particular we investigate if the amount of subsidy obtained has an influence on firms’ life duration. The most relevant result is the one concerning the unusual negative relationship which we find between size and life duration. We interpret this outcome in the light of the bias induced by subsidies in favour of larger and riskier firms.
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