Does Better Access to Finance Help Firms Deal with the COVID-19 Pandemic? Evidence from Firm-Level Survey Data
The advent of the novel coronavirus (COVID-19) pandemic has led to a severe liquidity crunch among private firms. Yet, formal analysis of the impact of a liquidity crunch or access to finance on the performance of firms during the pandemic is limit...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/149521623695272230/Does-Better-Access-to-Finance-Help-Firms-Deal-with-the-COVID-19-Pandemic-Evidence-from-Firm-Level-Survey-Data http://hdl.handle.net/10986/35767 |
| Summary: | The advent of the novel coronavirus
(COVID-19) pandemic has led to a severe liquidity crunch
among private firms. Yet, formal analysis of the impact of a
liquidity crunch or access to finance on the performance of
firms during the pandemic is limited. The present paper
estimates the impact of access to finance in the period
before the pandemic on the likelihood of a decline in sales
of the firm during the pandemic. The results show a strong
connection between the two. That is, firms with better
access to finance are significantly less likely to
experience a decline in sales, and this relationship is
highly heterogenous. First, better access to finance reduces
the likelihood of a decline in sales much more for firms
that have a stronger long-standing relationship with
important stakeholders such as skilled workers and input
suppliers. These are firms that use more skilled relative to
unskilled workers, firms in industries with a more complex
network of input suppliers, and firms in countries where the
cost of enforcing contracts with new input suppliers is
high. Second, the impact of access to finance is less among
firms that use more women relative to men workers. This is
especially so in countries or societies that accord a higher
value to women’s caregiving role than to their work outside
the home. The paper argues that both of these
heterogeneities are along expected lines and derive from the
specific ways in which access to finance benefits firms in
fighting the pandemic. Thus, they help to raise confidence
against endogeneity concerns about the main results. |
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