Funded by The Australian Research Council (Discovery Project)

Funding Amount: $194,628

Project start date: 2022

Researchers

  • Prof Antje Berndt (CI), ANU
  • Prof Darell Duffie (PI), Stanford University

Project Description

Australia's economic response to COVID-19 saw cash injections to companies and bailouts of some insolvent firms. This project aims to quantify the market value of these government subsidies and how it was shared across corporate stakeholders. The project expects to generate new knowledge for the design of financial stability regimes by developing the world-first dynamic structural model of firm assets that allows for government interventions both prior to and at default. Expected outcomes include a novel public dataset that tracks expected future subsidies and how they are shared by stakeholders. These forecasts should provide significant benefits to taxpayers as they fund the subsidies and gain from them as claimants to Australian firms.

National Interest Statement

In response to the COVID-19 outbreak, governments worldwide implemented emergency relief measures to stabilise their economies. In Australia, struggling businesses received cash injections through wage subsidies and firms considered too important to fail were kept from bankruptcy. To date, it is unknown how the net benefits derived from these subsidies are shared among different types of corporate stakeholders. This project proposes to develop the world-first dynamic structural model of firm assets that allows for government interventions both prior to and at insolvency, and to calibrate this model to financial reporting and securities market data. A novel database will be created to track, firm by firm, the market value stakeholders derive from future potential government interventions, and how it is split across equity owners, creditors and taxpayers. While taxpayers fund these interventions they may also gain from them as claimants to the cash flows generated by Australian firms. Australia will benefit from this research through the advancement of crucial cost-benefit analysis and crisis management tools.