Big government payouts like the CHIPS Act actually led semiconductor companies to carry less debt.
March 19, 2026
Original Paper
Industrial Policy and the Dynamics of Firm Leverage: Evidence from the CHIPS Act
SSRN · 6395958
The Takeaway
Economic theory predicts that interest subsidies should make firms borrow more. Instead, firms did the opposite—cutting their leverage to stay financially flexible because they were so uncertain about how and when the government would actually implement the subsidy programs.
From the abstract
We develop a dynamic model in which firms choose debt to finance investment while facing collateral constraints and interest subsidies that reduce borrowing costs. The model predicts that subsidies increase leverage through cost, collateral, and expectations channels. Using the 2022 CHIPS and Science Act as a natural experiment, we find the opposite: treated semiconductor firms reduce leverage relative to control firms, with no change in debt issuance or borrowing costs. These results are consis