The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy

Marco Pagano, Elena Carletti, Tommaso Oliviero (), Loriana Pelizzon () and Marti Subrahmanyam

No 14831, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper estimates the drop in profits and the equity shortfall triggered by the COVID-19 shock and the subsequent lockdown, using a representative sample of 80,972 Italian firms. We find that a 3-month lockdown entails an aggregate yearly drop in profits of €170 billion, with an implied equity erosion of €117 billion for the whole sample, and €31 billion for firms that became distressed, i.e., ended up with negative book value after the shock. As a consequence of these losses, about 17% of the sample firms, whose employees account for 8.8% of total employment in the sample (about 800 thousand employees), become distressed. Small and medium-sized enterprises (SMEs) are affected disproportionately, with 18.1% of small firms, and 14.3% of medium-sized ones becoming distressed, against 6.4% of large firms. The equity shortfall and the extent of distress are concentrated in the Manufacturing and Wholesale Trading sectors and in the North of Italy. Since many firms predicted to become distressed due to the shock had fragile balance sheets even prior to the COVID-19 shock, restoring their equity to their pre-crisis levels may not suffice to ensure their long-term solvency.

Keywords: Covid-19; Pandemics; Losses; Distress; Equity; Recapitalization (search for similar items in EconPapers)
JEL-codes: G01 G32 G33 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-rmg and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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Related works:
Journal Article: The COVID-19 Shock and Equity Shortfall: Firm-Level Evidence from Italy (2020)
Working Paper: The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy (2020)
Working Paper: The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy (2020)
Working Paper: The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy (2020)
Working Paper: The COVID-19 shock and equity shortfall: Firm-level evidence from Italy (2020)
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