SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis

Gourinchas, Pierre-Olivier; Kalemli‐Özcan, Ṣebnem; Penciakova, Veronika; Sander, Nick

doi:10.3386/w27877

Cited by 130 publications

(100 citation statements)

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“…This decline is found more pronounced in lowermiddle and low-income countries. Similarly, under the COVID-19 shock, SMEs also experience a severe contraction in future investment (Gourinchas et al 2020). Thus, we posit our first hypothesis: Hypothesis 1 SMEs would reduce credit demand in response to the COVID-induced shock.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

SMEs’ line of credit under the COVID-19: evidence from China

et al. 2021

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How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, we employ a difference-in-differences approach with the propensity score matching (PSM-DID) and compare Hubei SMEs’ credit responses before and after the outbreak relative to those of non-Hubei SMEs. Our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak. Plain English Summary Chinese SMEs’ credit demand deteriorated after the COVID-19 outbreak, though supported by the state-owned banks. How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak. According to our study, government COVID-supportive policies should target the SME subgroups such as non-SOEs, firms that heavily rely on supply chain, and those without stable bank relationships.

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Section: Hypotheses Developmentmentioning

confidence: 99%

SMEs’ line of credit under the COVID-19: evidence from China

et al. 2021

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“…This need has been made all the more crucial by the global effects of the COVID-19 pandemic, which, while having a great impact on companies of all sizes, proved to affect SMEs to a larger extent because of their physiologic financial weakness (Ciampi 2015), as well as their prevalence in the industries and countries more exposed to the effects of the pandemic (Adian et al 2020). Using a large firm level data set, Orbis, from BvD-Moody's, Gourinchas et al (2020) estimate that, without access to governmental liquidity measures, under COVID-19 the default rate for SMEs in seventeen countries will increase by nearly 9 percentage points in 2020. A recent a survey of more than 5,800 small firms between March 28 and April 4, 2020 conducted by Bartik et al (2020) find many small businesses are financially fragile with the median business having more than $10,000 in monthly expenses and only about two weeks of cash on hand at the time of the survey.…”

Section: Introductionmentioning

confidence: 99%

Rethinking SME default prediction: a systematic literature review and future perspectives

et al. 2021

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Over the last dozen years, the topic of small and medium enterprise (SME) default prediction has developed into a relevant research domain that has grown for important reasons exponentially across multiple disciplines, including finance, management, accounting, and statistics. Motivated by the enormous toll on SMEs caused by the 2007–2009 global financial crisis as well as the recent COVID-19 crisis and the consequent need to develop new SME default predictors, this paper provides a systematic literature review, based on a statistical, bibliometric analysis, of over 100 peer-reviewed articles published on SME default prediction modelling over a 34-year period, 1986 to 2019. We identified, analysed and reviewed five streams of research and suggest a set of future research avenues to help scholars and practitioners address the new challenges and emerging issues in a changing economic environment. The research agenda proposes some new innovative approaches to capture and exploit new data sources using modern analytical techniques, like artificial intelligence, machine learning, and macro-data inputs, with the aim of providing enhanced predictive results.

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“…Lastly, our paper is one of many in a rapidly growing literature on the economic impact of Covid-19, which are already too numerous to cite and many of which are surveyed in Brodeur et al (2020). Some examples include Alekseev et al (2020), Bartik et al (2020a and2020b), Brynjolfsson et al (2020), Buffington et al (2020), Bloom, Fletcher andYeh (2020), Gourinchas et al (2020), and Papanikolaou and Schmidt (2020) who show pervasive impacts on firms. Baqaee and Farhi (2020) show that negative sectoral supply shocks can be stagflationary and can be amplified by complementarities in production, Chetty et al (2020), Kahn et al (2020) and Cajner et al (2020) show large and heterogeneous labour-market impacts of Covid-19, Adams-Prassl et al (2020), Alon et al (2020) and Mongey et al (2020) and show the gender impact of the pandemic, Guerrieri et al (2020) show that supply shocks can cause demand shortages, and Jorda et al (2020) examine the longer-run consequences of past pandemics.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Covid-19 on Productivity

et al. 2020

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views do not necessarily represent those of the Bank of England or its Committees. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis

Cited by 130 publications

References 1 publication

SMEs’ line of credit under the COVID-19: evidence from China

SMEs’ line of credit under the COVID-19: evidence from China

Rethinking SME default prediction: a systematic literature review and future perspectives

The Impact of Covid-19 on Productivity

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