Working Paper: CEPR ID: DP15834
Authors: Mathieu Cros; Anne Epaulard; Philippe Martin
Abstract: We estimate the factors predicting firm failures in the COVID crisis based on French data in 2020. Although the number of firms filling for bankruptcy was much below its normal level (- 36% compared to 2019) the same factors that predicted firm failures (primarily productivity and debt) in 2019 are at work in a similar way as in 2020. Hence, the selection process, although much reduced, has not been distorted in 2020. At this stage, partial hibernation rather than zombification characterises the selection into firm survival or failure. We also find that the sectoral heterogeneity of the turnover COVID shock (proxied by the change in credit card transactions) has been largely (but not fully) absorbed by public policy support because it predicts little of the probability of bankruptcy at the firm level. Finally, we sketch some potential scenarios for 2021-2022 for different sectors based on our empirical estimates of predictors of firm failures.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher productivity (O49) | Lower bankruptcy probability (K35) |
| Higher debt (H63) | Increased bankruptcy risk (G33) |
| Government support measures (H81) | Reduction in bankruptcies (K35) |
| Sectoral heterogeneity in COVID shock (J49) | Absorption by public policy support (H29) |
| High debt levels (F34) | Increase in bankruptcies post-support (K35) |
| Firm characteristics (productivity, debt) (D21) | Bankruptcy likelihood (K35) |