Small business under the COVID-19 crisis: Expected short- and medium-run effects of anti-contagion and economic policies

Abstract

This study makes a causal inference on the effects of anti-contagion and economic policies on small business by conducting a survey on Japanese small business managers' expectations about the pandemic, policies, and firm performance. We first find the business suspension request decreased targeted firms' sales by 10 percentage points on top of the baseline 8 percentage points decline due to COVID-19. Second, using a discontinuity in the eligibility criteria, we find lump-sum subsidies improved firms' prospects of survival by 19 percentage points. Third, the medium-run recovery of firms' performance is expected to depend crucially on when infections would end, indicating that stringent anti-contagion policies could complement longer-run economic goals.

Using Managers' Expectations for Ex-Ante Policy Evaluation: Evidence from the COVID-19 Crisis

“…We find that receiving JPY 1 million of the SPSB increases the subjective survival probability as of July and November by 10.5 and 18.1 percentage points, respectively. The estimated magnitude is consistent with the result in Kawaguchi et al (2021), who used the expectation of receiving the subsidy instead of the received amount as the treatment variable. We find that the ex-ante and ex-post policy evaluations of the SPSB showed statistically significant effects of the same sign, but the ex-ante policy evaluation overestimates the ex-post policy evaluation's outcomes.…”

“…Other studies consistent with this literature examined how the Paycheck Protection Program (PPP), which offered guaranteed loans to small businesses in the United States, worked (Hubbard and Strain, 2020;Fairlie and Fossen, 2021;Katare et al, 2021). In the case of Japan, Kawaguchi et al (2021) and Miyakawa et al (2021) estimated the effects of subsidies on the survival of small businesses. As SMEs are more vulnerable to the pandemic, they tend to exit from the market.…”

“…Specifically, using the regression discontinuity design (RDD), we evaluate the impacts of two subsidy programs, the Subsidy Program for Sustaining Businesses (SPSB) and the Employment Adjustment Subsidy (EAS), on the exante subjective probability of closing the business and the ex-post actual business closure, and compared the results. In Kawaguchi et al (2021), we used the survey conducted in May 2020 on small business managers and showed that the expectations for receiving the SPSB increased the manager's expectation for surviving the COVID-19 pandemic, but that for receiving the EAS did not. In this study, we use the realized outcomes and subsidies instead of the expected outcomes and subsidies.…”

The impact of COVID-19 on Japanese firms: mobility and resilience via remote work

“… 5 See, for example, Fairlie ( 2020 ), Alekseev et al ( 2020 ), Bartik et al ( 2020 ), Buffington et al ( 2020 ), and Kawaguchi et al ( 2021 ). …”

What Impacts Has the Pandemic Had on Women’s Rights in the Developing World?

“…The second approach governments can adopt is to subsidize companies who leave their door open to female job seekers since these companies assume some risks in hiring women for their female employees might choose to resign when COVID-19 lockdown prevails. According to Kohei Kawaguchi (2021) [7], direct subsidy to small and medium-sized enterprises still in the trauma of COVID-19 pandemic is necessary since they offer substantial amount of job vacancies for Asian females.…”