Distortive effects of different State aid instruments: Evidence from COVID-19 support measures

While State aid measures are known to have the potential to distort competition, many forms of aid are nevertheless permitted where their benefits outweigh such distortions. State aid may be granted through a variety of instruments, some of which may be more distortive than others.This Article examines whether the way in which Covid support is granted, impacts firm outcomes once the GGE is accounted for. We link COVID-19-labelled State aid from the Commission’s State Aid Transparency database to accounting data for large-enterprise beneficiaries across 24 Member States (2020–2023), which results in 28 969 disbursement–firm observations. Using controlled regressions and a staggered, synthetic difference-in-differences design while conditioning on the aid element, we estimate the differential effect of grants versus other instruments. Grants are associated with a marked short-term strengthening of profitability and balance-sheet indicators (mainly profit margins, ROA, solvency indicators, and interest coverage), but these advantages dissipate and do not translate into consistently higher medium-term growth or efficiency relative to the controls, supported through other aid instruments.