The Virus and the Citadel: exploring the performance impact of business group affiliation for small businesses throughout the COVID-19 pandemic

This paper investigates the role of business group affiliation for small businesses before and during the COVID-19 crisis. Business group affiliation provides access to key strategic resources, which are arguably useful during external shocks, especially for small businesses. However, which resources matter in a crisis depends on public policy responses. Moreover, having access to resources is not sufficient to recover from a crisis, because autonomy in the decision-making processes is also important and depends on the organizational distance between an affiliated firm and the headquarters. We use the Amadeus database to collect financial information on a vast sample of group-affiliated and standalone firms in Europe. Our results confirm previous findings indicating that business group affiliation is particularly beneficial for affiliated firms during periods of crisis. We also show that the benefits of group affiliation in the post-COVID-19 recovery period relate to the capabilities offered by business groups’ internal labor markets, not increased investment capacity through access to internal capital markets. Firms at the periphery of business groups benefit the most from group affiliation.