IDEAS home Printed from https://ideas.repec.org/p/sef/csefwp/566.html
   My bibliography  Save this paper

The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy

Author

Listed:
  • Elena Carletti

    (Università Bocconi and CEPR)

  • Tommaso Oliviero

    (Università di Napoli Federico II and CSEF)

  • Marco Pagano

    (Università di Napoli Federico II, CSEF and EEIF)

  • Loriana Pelizzon

    (SAFE, Goethe University Frankfurt and Università di Venezia Ca' Foscari)

  • Marti G. Subrahmanyam

    (Stern School of Business, New York University)

Abstract

We forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown, using a representative sample of 80,972 Italian firms. A 3-month lockdown entails an aggregate yearly drop in profits of about 10% of GDP and results in financial distress for 17% of the sample firms, employing 8.8% of the sample employees. Distress is more frequent for small and medium-sized enterprises, for firms with high pre-COVID-19 leverage, and those belonging to the Manufacturing and Wholesale Trading sectors. Listed companies are less likely to enter distress, while there is no clear correlation between distress rates and family firm ownership.

Suggested Citation

  • Elena Carletti & Tommaso Oliviero & Marco Pagano & Loriana Pelizzon & Marti G. Subrahmanyam, 2020. "The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy," CSEF Working Papers 566, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 20 Jul 2020.
    • Handle: RePEc:sef:csefwp:566
    as

    Download full text from publisher

    File URL: http://www.csef.it/WP/wp566.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Isil Erel & Brandon Julio & Woojin Kim & Michael S. Weisbach, 2012. "Macroeconomic Conditions and Capital Raising," The Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 341-376.
    2. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    3. Stefano Ramelli & Alexander F. Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," Swiss Finance Institute Research Paper Series 20-12, Swiss Finance Institute.
    4. Şebnem Kalemli-Özcan & Luc Laeven & David Moreno, 2022. "Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis," Journal of the European Economic Association, European Economic Association, vol. 20(6), pages 2353-2395.
    5. Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2020. "Identifying the Real Effects of Zombie Lending," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 569-592.
    6. Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).
    7. Wagner, Alexander F. & Ramelli, Stefano, 2020. "Feverish Stock Price Reactions to COVID-19," CEPR Discussion Papers 14511, C.E.P.R. Discussion Papers.
    8. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    9. Altman, Edward I. & Esentato, Maurizio & Sabato, Gabriele, 2020. "Assessing the credit worthiness of Italian SMEs and mini-bond issuers," Global Finance Journal, Elsevier, vol. 43(C).
    10. Stefano Ramelli & Alexander F Wagner, 0. "Feverish Stock Price Reactions to COVID-19," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 622-655.
    11. Brunnermeier, Markus & Krishnamurthy, Arvind, 2020. "Corporate Debt Overhang and Credit Policy," Research Papers 3876, Stanford University, Graduate School of Business.
    12. Carla Guerriero & Andy Haines & Marco Pagano, 2020. "Health and sustainability in post-pandemic economic policies," Nature Sustainability, Nature, vol. 3(7), pages 494-496, July.
    13. Fabiano Schivardi & Enrico Sette & Guido Tabellini, 0. "Identifying the Real Effects of Zombie Lending," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 569-592.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ducret, Romain, 2021. "Investors' perception of business group membership during an economic crisis : Evidence from the COVID-19 pandemic," FSES Working Papers 524, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    2. Dunbar, Kwamie, 2022. "Impact of the COVID-19 event on U.S. banks’ financial soundness," Research in International Business and Finance, Elsevier, vol. 59(C).
    3. Viral V. Acharya & Robert F. Engle III & Maximilian Jager & Sascha Steffen, 2021. "Why Did Bank Stocks Crash During COVID-19?," NBER Working Papers 28559, National Bureau of Economic Research, Inc.
    4. Bae, Kee-Hong & El Ghoul, Sadok & Gong, Zhaoran (Jason) & Guedhami, Omrane, 2021. "Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic," Journal of Corporate Finance, Elsevier, vol. 67(C).
    5. Elham Daadmehr, 2024. "Workplace sustainability or financial resilience? Composite-financial resilience index," Risk Management, Palgrave Macmillan, vol. 26(2), pages 1-35, May.
    6. Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 430-471.
    7. Nils Engelhardt & Jens Ekkenga & Peter Posch, 2021. "ESG Ratings and Stock Performance during the COVID-19 Crisis," Sustainability, MDPI, vol. 13(13), pages 1-15, June.
    8. Rahman, Md Lutfur & Al Mamun, Mohammed Abdullah, 2021. "How resilient are the Asia Pacific financial markets against a global pandemic?," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    9. Ruggero Jappelli & Loriana Pelizzon & Alberto Plazzi, 2021. "The Core, the Periphery, and the Disaster: Corporate-Sovereign Nexus in COVID-19 Times," Swiss Finance Institute Research Paper Series 21-30, Swiss Finance Institute.
    10. Xiaoling Chu & Chiuling Lu & Desmond Tsang, 2021. "Geographic Scope and Real Estate Firm Performance during the COVID-19 Pandemic," JRFM, MDPI, vol. 14(7), pages 1-16, July.
    11. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    12. Roddy Allan & Ervi Liusman & Teddy Lu & Desmond Tsang, 2021. "The COVID-19 Pandemic and Commercial Property Rent Dynamics," JRFM, MDPI, vol. 14(8), pages 1-24, August.
    13. Garel, Alexandre & Petit-Romec, Arthur, 2021. "Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis," Journal of Corporate Finance, Elsevier, vol. 68(C).
    14. Heyden, Kim J. & Heyden, Thomas, 2021. "Market reactions to the arrival and containment of COVID-19: An event study," Finance Research Letters, Elsevier, vol. 38(C).
    15. repec:zbw:bofitp:2020_015 is not listed on IDEAS
    16. Andrieș, Alin Marius & Ongena, Steven & Sprincean, Nicu, 2021. "The COVID-19 Pandemic and Sovereign Bond Risk," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    17. Gregory, Richard Paul, 2022. "ESG scores and the response of the S&P 1500 to monetary and fiscal policy during the Covid-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 446-456.
    18. Harrison Hong & Jeffrey D. Kubik & Neng Wang & Xiao Xu & Jinqiang Yang, 2020. "Pandemics, Vaccines and an Earnings Damage Function," NBER Working Papers 27829, National Bureau of Economic Research, Inc.
    19. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    20. Contessi, Silvio & De Pace, Pierangelo, 2021. "The international spread of COVID-19 stock market collapses," Finance Research Letters, Elsevier, vol. 42(C).
    21. Meyer, Brent H. & Prescott, Brian & Sheng, Xuguang Simon, 2022. "The impact of the COVID-19 pandemic on business expectations," International Journal of Forecasting, Elsevier, vol. 38(2), pages 529-544.

    More about this item

    Keywords

    COVID-19; pandemics; losses; distress; equity; recapitalization.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:566. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Maria Carannante (email available below). General contact details of provider: https://edirc.repec.org/data/cssalit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.