Small Firms amidst COVID-19: Financial Constraints and Role of Government Support

Inequalities in the Times of a Pandemic

“…In France, show that sectors such as personal care, clothing and fashion, and jewellery have substantially increased their share of online sales during the lockdown (mid-March to mid-May 2020). Across 13 countries (Albania, Chad, Cyprus, Georgia, Greece, Guinea, Italy, Moldova, Niger, Russia, Togo, Zambia, and Zimbabwe), financially-constrained firms were 22% more likely to shut down their operations and also more likely to lay off workers between May and July 2020 (Chundakkadan et al (2020)).…”

Organizational Resources, Country Institutions, and National Culture Behind Firm Survival and Growth during COVID-19

“…Two studies find that firms tend to weather the pandemic storm better when facing less financial pressure: Carletti et al (2020) study both listed and private firms in Italy and find that private firms and firms with a high pre-pandemic leverage are more likely to exhibit financial distress. Chundakkadan et al (2020), using survey data of 13 countries from the World Bank, demonstrate that financially constrained firms are more likely to go bankrupt than non-financially constrained firms.…”

“…While the pandemic has brought financial shocks to all firms (Chundakkadan et al 2020), firms with soft-budget constraints are more likely to survive and even thrive, as they can always go to the government to ask for financial or other material supports. Besides profit consideration, state-owned firms are also more likely to have political considerations, especially when it comes to absorbing negative shocks to employment during a crisis.…”

“…While this emerging literature on corporate immunity has paid most attention to listed firms in the United States, 2 some studies have examined the effects of firm/country characteristics on listed firms in a cross-country setting (Ding et al 2021). In a cross-country study of private firms in 13 countries, Chundakkadan, Raj, and Sasidharan (2020) focus on how financial constraint impacts firm survival rate, and examine the relative impact of the pandemic on female-headed firms in 24 countries. In single-country studies, Carletti et al (2020) and Gu et al (2020) examine Italian and Chinese private firms' behaviors and outcomes during the pandemic, respectively.…”

“…State ownership has been linked to soft-budget constraints (Megginson, Ullah, and Wei, 2014). While the pandemic has brought financial shocks to all firms (Chundakkadan et al 2020), firms with soft-budget constraints are more likely to survive and even thrive. Interestingly, subsidiaries affiliated with larger parent firms are also significantly more likely to survive and grow during the pandemic, possibly due to supports from their respective parent companies.…”