Estimates of corporate cleansing during COVID-19 – using firm-level data to measure its productivity impact

Liza Archanskaia, Plamen Nikolov and Wouter Simons

Quarterly Report on the Euro Area (QREA), 2022, vol. 21, issue 2, 7-18

Abstract: This section traces one of the channels through which the COVID-19 pandemic affects aggregate productivity – namely aggregate productivity changes linked to the exit of vulnerable firms (“cleansing” through firm exit). The impact of the exit margin on productivity is obtained by: (1) quantifying the impact of the pandemic on sales; (2) simulating the impact of this reduction in sales on firm-level accounts from the ORBIS database to identify financially vulnerable firms; (3) connecting financial vulnerability and pre-pandemic productivity. Our simulations suggest the pandemic would not induce additional cleansing effects as compared with a counterfactual no-COVID-19 scenario. The reason is that the COVID-19 shock adversely affected the financial health of not only low-productivity firms, but also high-productivity ones. These findings suggest that broad-based policy support implemented in connection with the pandemic did not imply foregone productivity growth through the exit margin.

Keywords: COVID-19; EU policies; productivity; TFP; reallocation; cleansing; financial vulnerability; distress (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0212-01

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