Firms’ financial vulnerabilities during COVID-19: Was the French support package too generous ?

Sarah Guillou (), Karsten Mau and Tania Treibich
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Sarah Guillou: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: We exploit detailed and comprehensive data from France, combining firms' balance sheet information and trade records, to uncover the role of firm characteristics in their exposure to the COVID-19 pandemic. Next, we study the impact of three governmental support policies on firms' liquidity position in 2020: the wage subsidy scheme (AP), the solidarity fund (FSE) and the loan guarantee (PGE). We highlight four dimensions of heterogeneity for policy efficiency in our analysis: the type of liquidity shock, sector and size groups and labor productivity deciles. Our microsimulation exercise shows that aggregate policy support matches very well total liquidity losses. Yet, the compensation scheme was not perfect as these aggregate figures hide heterogeneous policy efficiency across firms and policies. Nearly one fourth of firms were over-compensated, which allowed them to improve their liquidity position, but those that suffered the highest liquidity losses did not receive enough support. Our simulation shows that 7.4 billion (bn) euros of subsidies were given to firms in excess of their liquidity loss. The share of overcompensated firms rises to 39% when we account for the guaranteed loans. We locate them mostly in the wholesale and retail, manufacturing and culture and leisure sectors. Yet, most firms were not fully compensated. This was especially the case for those that became illiquid in 2020, very large firms, highly productive firms, and firms in the hospitality and construction sectors.

Date: 2023-01-16
New Economics Papers: this item is included in nep-eff and nep-eur
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Working Paper: Firms’ financial vulnerabilities during COVID-19: Was the French support package too generous ? (2023)
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