Targeted wage subsidies that reduce part of the wage costs for private firms hiring unemployed workers are an integral part of active labor market policies (ALMP) in most Western countries. The main objective is to help disadvantaged workers find jobs, and most studies tend to find that the policy tool is very efficient in this dimension (for surveys see, e.g., Card et al. 2010, 2015 and Kluve 2010). Despite these positive estimates, policy prescriptions tend to be cautious because of concerns regarding demand side responses (see e.g. Neumark, 2013). These concerns include crowding out of unsubsidized hires and fears that wage subsidies allocate workers to unproductive firms that are able to hire and compete on the market only due to the subsidies. Yet, there exists very little systematic evidence on the characteristics of the firms that hire with targeted subsidies, and on the impact the subsidies have on these firms. In this paper, we make three distinct additions to the literature: we document the extent to which the characteristics of subsidized firms differ from those of other recruiting firms, we describe the extent to which key firm-level outcomes change due to the subsidies, and we analyze whether these patterns depend on the degree of caseworker discretion when subsidies are allocated. Together, this provides new empirical evidence on key concerns regarding wage-subsidy distortions. The results also provide some novel (and rare) evidence on how ALMPs affect the allocation of workers across firms, an issue that has received much recent attention within the wider labor-economic literature (see e.g. Card et al. 2013, Song et al. 2015 and Card et al. 2018). Our analysis uses detailed Swedish administrative data on workers and firms in order to study the impact of targeted wage subsidies. We start from spell data on unemployed workers and the subsidies they receive and link this information to a matched employer-employee database which allows us to follow the employing firms over time. Data from business registers provides information on profits, sales, wage sums, value added and investments for the same firms. Our analysis compares firms recruiting through subsidies (defined as treated) to other observably identical firms. We focus on small- and medium-sized firms throughout in order for the subsidies to be of a non-trivial magnitude relative to firm-performance measures. For the causal analysis, we compare treated firms to firms that hire unemployed workers without using subsidies.