COVID-19 and SME failures

Arbeitspapier

We estimate the impact of the COVID-19 crisis on business failures among small and medium-size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost minimization and measure each firm's liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation and food services; arts, entertainment, and recreation; education; and other services are among the sectors most affected. The SME jobs at risk due to business failures related to COVID-19 represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of nonperforming loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks' assets, and would result in a 0.75 percentage point decline in the common equity tier 1 capital ratio. We also evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at-risk firms can be modest (0.54 percent of gross domestic product). However, at a similar level of effectiveness, nontargeted subsidies can be substantially more expensive (1.82 percent of gross domestic product). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2020-21

Classification and Topics

• Classification: Wirtschaft ; Studies of Particular Policy Episodes ; Bankruptcy; Liquidation
• Subject: COVID-19 ; business failures ; liquidity ; small business

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gourinchas, Pierre-Olivier ; Kalemli-Ozcan, Sebnem ; Penciakova, Veronika ; Sander, Nick
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Atlanta
• (where): Atlanta, GA
• (when): 2020

Further information

• DOI: doi:10.29338/wp2020-21
• Handle: http://hdl.handle.net/10419/244302
• Last update: 10.03.2025, 11:43 AM CET