From rapid decline to high growth: where in the distribution did COVID hit hardest?
Coad, A, Bauer, P., Domnick, C., Harasztosi, P., Pál, R. and Teruel, M. (2023): “From rapid decline to high growth: Where in the distribution did COVID hit hardest?”, Journal of Small Business and Enterprise Development
The authors explore how did the COVID shock hit European firms at the upper quantiles (high-growth superstars) and the lower quantiles (rapidly declining firms). The authors analyse the European Investment Bank Investment Survey (2016-2020) and apply graphical techniques and quantile regression to evaluate the COVID shock along the growth rates distribution.
Their findings show that, regarding growth of sales and growth of value added, COVID had a negative effect on growth across the growth rates distribution. The negative COVID effect is larger at the lower quantiles. Furthermore, employment growth shows no effect for many firms that have zero employment growth, but at the extreme quantiles, the authors can observe that some declining firms were adversely affected by COVID. For labour productivity growth, the COVID effect is small. Analysis of subsamples, and quantile regressions with interaction terms, emphasize that firms receiving policy support were relatively strongly affected by COVID, consistent with interpretations that COVID policy support was reaching the intended recipients. Finally, fully digitalized firms may have been somewhat shielded from the harmful effects of COVID.
This paper makes different contributions. First, previous studies have focused on the average effect of COVID on the growth performance. Our research contributes to understanding how the COVID shock affected the entire growth rates distribution, ranging to high-growth firms and declining firms. Second, governments devoted financial support to firms. Our analysis explores if COVID policy support was given to companies more affected by this shock. Third, previous digitalization may have boosted resilience by shielding firms from COVID's harmful effects on firm growth.