What Types of Firms Become Illiquid as a Result of COVID-19? A Firm-Level Perspective Using French Data

William Connell Garcia and Victor Ho

No 136, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This analysis uses the most recent cross-section of financial statements of French companies from the ORBIS database only as an illustration in order to evaluate their capacity to cushion the COVID-19 shock on sales through previously accumulated cash reserves, operational flexibility and policy intervention. This paper has two main objectives. The first one being to investigate the extent to which the ability to cushion the economic shock is linked to specific company characteristics. The second objective is to evaluate how variation in the parameterisation of the economic shock, i.e. policy intervention and duration of the economic shock, affects the likelihood that specific types of companies become illiquid. We find evidence that both more productive companies and firms with a higher solvency ratio (profits/liabilities) are less likely to become illiquid. This result is robust to the parameterisation of the economic shock. Policy intervention, modelled as additional operational flexibility, alleviates the risk of facing a liquidity shortfall across the board, but does not eliminate it. Finally, using sectoral data from Eurostat, this analysis connects the risk of liquidity shortfalls to specific characteristics of the labour force, finding that the relatively vulnerable sectors are those that rely the most on labour, and whose workforce is relatively young and low-skilled.

JEL-codes: C25 C54 D22 D24 G30 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cfn and nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:136

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