Did Government Support During COVID-19 Reach the Right Companies? An empirical analysis of the targeting of the compensation scheme for companies in Norway

This thesis investigates whether government support to companies during COVID-19 has reached the “right” companies. We analyse how well-targeted the compensation scheme for companies in Norway has been, in that it reached companies that were both viable and hardhit by the pandemic. By using publicly available data on compensation payments to Norwegian companies in 2020 matched with the companies’ respective company information and accounting data, we conduct a twofold empirical analysis. First, we estimate the effect of companies’ bankruptcy probability, measured by Altman’s Z-Scores in 2019, on received compensation by employing an OLS regression model. Second, we apply a logit regression model and a two-way fixed effects model to analyse the effect of received compensation on companies’ dividend payments. Our results suggest that companies that had a moderate and high probability of going bankrupt received 18.9% and 7.1% more compensation than those that had a low bankruptcy probability, respectively. Further, our findings indicate that companies that received more compensation had a lower probability of paying out dividends in 2020 and also paid out less dividends that year. The obtained results imply that the scheme has not fully lived up to its purpose in terms of targeting otherwise viable companies, yet we find no evidence that it reached companies that were not in great need of support. These insights can be valuable when having to construct well-targeted and efficient policy responses to support companies in future crises.