Reaction to Idiosyncratic Economic Shocks—Economic Resilience of Small- and Medium-Sized Enterprises

The objective of this research is to present a qualitative methodology for the empirical investigation of enterprises’ responses to economic shocks. Annual balance sheets and income statements of nearly 26,000 Hungarian small- and medium-sized enterprises (SMEs) in the production sector have been examined. A data-driven resilience metric is introduced, based on annual sales growth fluctuations in response to idiosyncratic economic disturbances. Accordingly, Logistic Regression and Random Forest classification of company-year observations have been conducted. Non-parametric statistical tests based on pair-matching suggest that while resilience against economic downturns is critical for short-term survival, it does not necessarily translate to any enhanced long-term development or prosperity. This study demonstrates that companies exposed to economic setbacks tend to lag behind compared to control pairs and illuminate the aftermath of resilient shock reactions at the population level. Our findings suggest that enterprises that have experienced an economic shock should be considered vulnerable and monitored regardless of their shock reaction history as part of a sustainable national economic strategy to foster overall competitiveness and productivity and maintain supply chains.