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Firm Shutdown During the Financial and the Sovereign Debt Crises: Empirical Evidence from Portugal

We examine how the impact of the recent crises on firm performance, in terms of risk of shutdown, differed depending on firm size. We use a panel of linked employer-employee data covering the period 2002-2012 and investigate whether the effect of firm size varies over the business cycle and with the type of shock associated with two phases of economic contraction: the Financial Crisis and the Sovereign Debt Crisis. Our results show that smaller firms are more likely to shutdown than larger firms, with micro firms being nearly three times more likely to shutdown than large firms. However, within each size band, micro firms are found to experience at least similar rates of survival during the two crises, relative to large firms, to those observed in the pre-crisis period; while medium sized firms are found to be more vulnerable during the financial crisis period, but show more resilience during the sovereign debt crisis. Overall, however, the results suggest that during the sovereign debt crisis firms faced higher probability of closing than during the financial crisis.

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Paper provided by Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho in its series NIMA Working Papers with number 61.

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Length: 28 pages
Date of creation: Jun 2016
Publication status: Published in International Journal of the Economics of Business, May 2017, Volume 24, Issue 2, pages 153-179
Handle: RePEc:nim:nimawp:61/2016
DOI: 10.1080/13571516.2017.1309105
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