The consequences of COVID-19 crisis on firms’ liquidity needs

The economic recession triggered by the Covid-19 pandemic has generated a negative impact on firms’ liquidity needs, induced both by the rigidity of costs and financial commitments and by the drop in sales linked to the restrictions on economic activities imposed during the periods of pandemic propagation. This paper analyzes these effects on the liquidity needs of Italian firms, before and after the government support interventions, focusing on non-financial firms with revenues up to EUR 50 million and with fewer than 250 employees. By constructing a new dataset that integrates information from multiple sources, we show that government measures have strongly contributed to mitigate the effects of the crisis, almost halving the percentage of companies in liquidity crisis at the end of 2020 (from 38.1% to 18.2%) and limiting the liquidity requirements of companies from 83.7 to 26.5 billion. The access to public guarantee schemes on loans would have further reduced the deficit to EUR 18.5 billion. Debt standstills and fixed cost refunds have been very effective in supporting firms, that have actually recorded a liquidity deficit due to pandemic crisis.