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Firm-level Expectations and Behavior in Response to the COVID-19 Crisis

Lukas Buchheim, Jonas Dovern (), Carla Krolage () and Sebastian Link
Additional contact information
Carla Krolage: Ifo Institute for Economic Research

No 13253, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the determinants of firms' business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdown—which, at this point of the crisis, exhibit plausibly random variation—are an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.

Keywords: expectations; firm behavior; COVID-19; shutdown; employment; investment (search for similar items in EconPapers)
JEL-codes: D22 D84 E23 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-05
New Economics Papers: this item is included in nep-bec, nep-eur, nep-lma, nep-mac and nep-tid
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