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Liquidity Shortfalls during the COVID-19 Outbreak: Assessment and Policy Responses
[Difficultés financières des entreprises pendant l’épidémie de Covid‑19 et réponses des politiques publiques : une évaluation]

Author

Listed:
  • Lilas Demmou

    (OCDE / OECD - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

  • Guido Franco

    (OCDE / OECD - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

  • Sara Calligaris

    (OCDE / OECD - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

  • Dennis Dlugosch

    (OCDE / OECD - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

Abstract

The paper investigates the impact of stylised policy measures on the financial vulnerability of non‑financial firms during the COVID‑19 pandemic crisis. It evaluates the extent to which firms run into a liquidity crisis following the COVID‑19 outbreak and the impact of policies to reduce the risks of such a crisis. The analysis relies on: an accounting model, a large dataset reporting firms' balance sheets for 14 countries and data on the magnitude of the shock at the sector level. Results suggest that, without any policy intervention, up to 38% of firms were to face liquidity shortfalls after ten months since the implementation of confinement. Comparing the impact of different policies, the analysis shows that government support to relieve wage bills is the most effective tool, followed by debt moratorium policies. Finally, the paper zooms into labour market policies and compares the cost‑efficiency of short‑term work and wage subsidies schemes, highlighting how their relative efficiency depends on their design.

Suggested Citation

  • Lilas Demmou & Guido Franco & Sara Calligaris & Dennis Dlugosch, 2022. "Liquidity Shortfalls during the COVID-19 Outbreak: Assessment and Policy Responses [Difficultés financières des entreprises pendant l’épidémie de Covid‑19 et réponses des politiques publiques : une," Post-Print hal-05206885, HAL.
    • Handle: RePEc:hal:journl:hal-05206885
    DOI: 10.24187/ecostat.2022.532.2070
    Note: View the original document on HAL open archive server: https://insee.hal.science/hal-05206885v1
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    References listed on IDEAS

    as
    1. Mattia Guerini & Lionel Nesta & Xavier Ragot & Stefano Schiavo, 2020. "Firm liquidity and solvency under the Covid-19 lockdown in France," SciencePo Working papers Main hal-03059232, HAL.
    2. Mattia Guerini & Lionel Nesta & Xavier Ragot & Stefano Schiavo, 2020. "Firm liquidity and solvency under the Covid-19 lockdown in France," Post-Print hal-03403022, HAL.
    3. repec:hal:spmain:info:hdl:2441/a8bbt5m569depe1larqkd498n is not listed on IDEAS
    4. Sebnem Kalemli-Ozcan & Bent Sorensen & Carolina Villegas-Sanchez & Vadym Volosovych & Sevcan Yesiltas, 2015. "How to Construct Nationally Representative Firm Level Data from the Orbis Global Database: New Facts and Aggregate Implications," NBER Working Papers 21558, National Bureau of Economic Research, Inc.
    5. Mr. Christian H Ebeke & Nemanja Jovanovic & Ms. Laura Valderrama & Jing Zhou, 2021. "Corporate Liquidity and Solvency in Europe during COVID-19: The Role of Policies," IMF Working Papers 2021/056, International Monetary Fund.
    6. Sørensen, Bent E & Kalemli-Özcan, Sebnem & Volosovych, Vadym & Villegas-Sanchez, Carolina & Yesiltas, Sevcan, 2015. "How to construct nationally representative firm level data from the ORBIS global database," CEPR Discussion Papers 10829, C.E.P.R. Discussion Papers.
    7. Matej Bajgar & Giuseppe Berlingieri & Sara Calligaris & Chiara Criscuolo & Jonathan Timmis, 2020. "Coverage and representativeness of Orbis data," OECD Science, Technology and Industry Working Papers 2020/06, OECD Publishing.
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    Cited by:

    1. Xavier Ragot, 2022. "Comment – Public Support to Companies in Times of Crisis: The Value of Microsimulations based on Company Data," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 532-33, pages 63-69.
    2. David R. Agrawal & Aline Bütikofer, 2022. "Public finance in the era of the COVID-19 crisis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1349-1372, December.
    3. Lalinsky, Tibor & Meriküll, Jaanika & Lopez-Garcia, Paloma, 2024. "Productivity-enhancing reallocation during the Covid-19 pandemic," Working Paper Series 2947, European Central Bank.
    4. Harasztosi, Péter & Maurin, Laurent & Pál, Rozália & Revoltella, Debora & van der Wielen, Wouter, 2022. "Firm-level policy support during the crisis: So far, so good?," International Economics, Elsevier, vol. 171(C), pages 30-48.
    5. repec:zbw:bofrdp:2022_001 is not listed on IDEAS
    6. Benjamin Bureau & Anne Duquerroy & Frédéric Vinas & Andrew EllulEditor, 2024. "Activity Shocks and Corporate Liquidity: the Role of Trade Credit," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(3), pages 668-711.
    7. Bighelli, Tommaso & Lalinsky, Tibor & Vanhala, Juuso, 2023. "Cross-country evidence on the allocation of COVID-19 government subsidies and consequences for productivity," Journal of the Japanese and International Economies, Elsevier, vol. 68(C).
    8. Huneeus,Federico & Kaboski,Joseph P. & Larrain,Mauricio & Sergio Schmukler & Vera,Mario, 2024. "Crisis Credit, Employment Protection, Indebtedness, and Risk," Policy Research Working Paper Series 10958, The World Bank.
    9. Willem Vanlaer & Mattia Picarelli & Wim Marneffe, 2021. "Debt and Private Investment: Does the EU Suffer from a Debt Overhang?," Open Economies Review, Springer, vol. 32(4), pages 789-820, September.
    10. Tommaso Ferraresi & Leonardo Ghezzi & Fabio Vanni & Alessandro Caiani & Mattia Guerini & Francesco Lamperti & Severin Reissl & Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2021. "On the Economic and Health Impact of the COVID-19 Shock on Italian Regions: A Value Chain Approach," GREDEG Working Papers 2021-18, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    11. Dongli Cao & Safdar Husain Tahir & Syed Maisam Raza Rizvi & Khuda Bakhsh Khan, 2024. "Exploring the influence of women’s leadership and corporate governance on operational liquidity: The glass cliff effect," PLOS ONE, Public Library of Science, vol. 19(5), pages 1-18, May.
    12. Archanskaia, Elizaveta & Canton, Erik & Hobza, Alexandr & Nikolov, Plamen & Simons, Wouter, 2023. "The asymmetric impact of COVID-19: A novel approach to quantifying financial distress across industries," European Economic Review, Elsevier, vol. 158(C).
    13. Sarah Guillou & Karsten Mau & Tania Treibich, 2023. "Firms’ financial vulnerabilities during COVID-19: Was the French support package too generous ?," SciencePo Working papers Main hal-03981175, HAL.
    14. Bighelli, Tommaso & Lalinsky, Tibor & Vanhala, Juuso, 2022. "Covid-19 pandemic, state aid and firm productivity," Bank of Finland Research Discussion Papers 1/2022, Bank of Finland.
    15. Bighelli, Tommaso & Lalinsky, Tibor & Vanhala, Juuso, 2022. "Covid-19 pandemic, state aid and firm productivity," Bank of Finland Research Discussion Papers 1/2022, Bank of Finland.
    16. Kamal, Md Mostafa & Roca, Eduardo & Li, Bin & Lin, Chen & Reza, Rajibur, 2025. "Price contagion and risk spillover in the global commodities market: COVID-19 pandemic vs. global financial crisis," Resources Policy, Elsevier, vol. 103(C).

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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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