Where have all the insolvencies gone?

Like in many other industrialized countries, government support programs kept corporate insolvency rates below pre-crisis levels in Austria in 2020 and 2021, and continued to do so in 2022 in all months for which data were available at the time of writing (up to July 2022). From information available to the OeNB, we built a firm-level database to examine whether the lower rates of insolvencies were offset by higher rates of firms exiting the market without insolvency and/or lower rates of firms entering the market. We find the number of firm exits without insolvency to have gone down as well, whereas firm entries remained rather stable in 2020 and increased markedly in 2021. On the assumption that the pandemic support payments were designed to keep vulnerable firms in business, our corporate balance sheet data suggest that the support was lavish and probably not targeted enough. To further substantiate our findings, we cross-check our database with the European Commission’s state aid transparency database. The evidence at hand suggests that a rather large share of the public support payments ultimately appears to have increased firms’ deposits, respectively their liquidity buffers, in a highly uncertain environment, and even equity, rather than having to be spent to keep businesses afloat. With the benefit of hindsight, government support provided in 2020 can, therefore, to a large extent be interpreted as compensation for losses due to state-imposed lockdowns or public transfers to equity holders for the build-up of risk buffers. Put differently, the full extent of government support does not seem to have been crucial for keeping firms in existence. Looking ahead, more transparency with regard to firm-level pandemic support payments is a necessary precondition for gaining a deeper understanding of the impact of public support on the structure of the business sector and corporate balance sheets, competition, innovation and financial stability. These insights could help in improving measures for current and future crises.