Summary:

This paper examines the possible effects of government financial support to firms through
Innovation Norway (IN). We compare firms that received support from IN in the years 2006-
2010 with comparable firms that applied for support, but were rejected. To manage potential
endogeneity problems, we assess the effects of IN support by combining propensity score
matching with a differences-in-differences estimation. We thereby control for observable firm
characteristics and fixed firm effects. The treatment effects of participation are estimated for
two types of IN grants: Establishing grants and development grants. The treatment effects are
measured as differences in growth between the treated and matched firms the first two and three
years after receiving IN support.
We find no evidence that establishing grants have positive effects on value creation, number of
employees or return on assets. We even find some evidence of negative effects of receiving
establishing grants on operating profits and sales revenue. However, the results for sales
revenue are not robust, and the results for operating profits are only significant two years after
treatment. For development grants, we find significant positive effects on operating profits and
employment. On the other hand, we find no clear evidence that development grants have
positive effects on value creation, sales revenue or return on assets.