Strategic performance measurement and the use of capital subsidies

Abstract

Purpose

This paper seeks to show that capital subsidies are used as instruments of long‐term corporate strategy. Previous research indicates that capital subsidies do not improve firm performance, as this is reflected by measures of productivity growth or by financial measures of profitability and improved capital structure.

Design/methodology/approach

The paper shows that a large, publicly available database of firms in the Greek food and beverages, covering a significant time span, is used to evaluate the effects of capital subsidies on strategic performance. Strategic performance is reflected by three novel indicators capturing a firm's orientation towards market power and leadership.

Findings

The paper finds that capital subsidies have a positive impact on firms' long‐term strategic orientations such as the firms' net market growth and the optimal scale of operation. The provision of capital subsidies assists firms to overcome the cost disadvantages coming from operation at a sub‐optimal scale of output and fixed capital, and increase their net market share.

Research limitations/implications

The paper shows that more measures of long‐term strategic corporate performance should be employed in order to provide more research evidence that is required to detail the exact impacts of capital subsidies on corporate strategy.

Practical implications

The paper shows that the capital subsidies have an impact on strategic performance and thus their provision should be the outcome of careful design from the point of view of both the individual manager and the policy authorities.

Originality/value

In this paper three new indicators of a firm's strategic orientation are employed and provide the first empirical evidence of the impacts of capital subsidies on corporate strategy.

Citation

Tzelepis, D. and Skuras, D. (2006), "Strategic performance measurement and the use of capital subsidies", International Journal of Productivity and Performance Management, Vol. 55 No. 7, pp. 527-538. https://doi.org/10.1108/17410400610702133