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Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis

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  • Pierre-Olivier Gourinchas
  • Ṣebnem Kalemli-Özcan
  • Veronika Penciakova
  • Nick Sander

Abstract

We develop a flexible framework for tracking business failures during economic downturns. Our framework combines firm-level data with a model of cost-minimization where firms react to a rich set of shocks and fail if illiquid. After verifying that our methodology approximates past official failure rates, we apply it to the COVID-19 crisis in 11 countries. Absent government support, SME failures would have increased by 6.15 percentage points, representing 3.15 percent of employment. We find little threat to financial stability. Commonly implemented COVID-19 policies saved firms but were costly because funds were directed to firms that could survive without support.

Suggested Citation

  • Pierre-Olivier Gourinchas & Ṣebnem Kalemli-Özcan & Veronika Penciakova & Nick Sander, 2020. "Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis," NBER Working Papers 27877, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27877
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    Cited by:

    1. Groenewegen, Jesse & Hardeman, Sjoerd & Stam, Erik, 2021. "Does COVID-19 state aid reach the right firms? COVID-19 state aid, turnover expectations, uncertainty and management practices," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    2. Thomas Philippon, 2020. "Efficient Programs to Support Businesses During and After Lockdowns," NBER Working Papers 28211, National Bureau of Economic Research, Inc.
    3. Vujanović, Nina & Stojčić, Nebojša & Hashi, Iraj, 2021. "FDI spillovers and firm productivity during crisis: Empirical evidence from transition economies," Economic Systems, Elsevier, vol. 45(2).
    4. Tan, Brandon & Igan, Deniz & Martinez Peria, Maria Soledad & Pierri, Nicola & Presbitero, Andrea F., 2021. "Government intervention and bank markups: Lessons from the global financial crisis for the COVID-19 crisis," Journal of Banking & Finance, Elsevier, vol. 133(C).
    5. Nopriadi Saputra, 2021. "Double-Sided Perspective of Business Resilience: Leading SME Rationally and Irrationally During COVID-19," GATR Journals jmmr275, Global Academy of Training and Research (GATR) Enterprise.
    6. repec:ctc:sdimse:dime21_01 is not listed on IDEAS
    7. Caselli, Mauro & Fracasso, Andrea & Traverso, Silvio, 2021. "Robots and risk of COVID-19 workplace contagion: Evidence from Italy," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    8. Jose M. Berrospide & Arun Gupta & Matthew P. Seay, 2021. "Un-used Bank Capital Buffers and Credit Supply Shocks at SMEs during the Pandemic," Finance and Economics Discussion Series 2021-043, Board of Governors of the Federal Reserve System (U.S.).

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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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