Financing Firms in Hibernation During the COVID-19 Pandemic

Abstract

The coronavirus (COVID-19) pandemic has imposed a heavy toll on economies worldwide, nearly halting economic activity. Although most firms should be viable when economic activity resumes, cash flows have collapsed, possibly triggering inefficient bankruptcies with long-term detrimental effects. Firms' valuable relationships with workers, suppliers, customers, governments, and creditors could be broken. Hibernation could slow the economy until the pandemic is brought under control and preserve those vital relationships for a quicker recovery. If all stakeholders share the burden of economic inactivity, firms are more likely to survive. Financing could help cover firms' reduced operational costs until the pandemic subdues. But financial systems are not well equipped to handle this type of exogenous and synchronized systemic shock. Governments could work with the financial sector to keep firms afloat, enabling forbearance as needed and absorbing part of the firms' increased credit risk, by implementing policies with proper incentives to keep firms viable.

Strategy-induced organisational resilience through dynamic resource orchestration

“…Not only that, but the banks were also noted to enjoy slack credit through investment in treasury bills which was observed as an easy way of making money. This finding is consistent with discourse highlighted by Didier et al (2021) relative to financing firms in hibernation during the Covid-19 pandemic within the United States private sector, where they established that credit lines are essential liquidity sources that enable them to survive the pandemic.…”

A literature review of the economics of COVID‐19

“…These policies can break the cycle of negative feedback loops between corporate defaults and potential insolvency of financial intermediaries, which could culminate in a meltdown in financial markets (Elenev et al, 2020). Didier et al (2020) discuss the policy menu, priorities, and trade-offs of providing direct financing to firms. Chetty et al (2020) analyze the causal effect of policies implemented in the United States on households and businesses.…”

The impact of the COVID-19 crisis on the perception of business risk in the SME segment

“…The authors emphasize the importance of information and knowledge about the pandemic's development and the ways of getting information, as well as the complexity level of the information that helps form views within the society and the population. Didier et al (2020) studied the topic of financing firms in hibernation during the COVID-19 pandemic. They mention a strong negative impact of the pandemic on countries' economies worldwide and the suspension of business activities.…”