Publication type: Working paper – expertise – study
Title: COVID-19 : guaranteed loans and zombie firms
Authors: Zoller-Rydzek, Benedikt
Keller, Florian
et. al: No
Extent: 35
Issue Date: 5-Jun-2020
Language: English
Subject (DDC): 330: Economics
Abstract: Based on the ZHAW Managers Survey (7-13 April 2020) we evaluate firm reactions towards the COVID-19 crisis. We find that the Swiss economic lockdown measures successfully froze the economy, i.e., firms show very little pro-active reactions towards the crisis, but drastically decrease their business activities. The firms in the survey report that the decline in foreign demand is the single most important reasons for their deteriorating business situation. The only significant pro-active reactions to mitigate the crisis are increased digitalization efforts. These efforts are expected to have a long-lasting impact on firms' performance due to a selection effect, i.e., firms with more positive experience of digitialization will maintain their higher levels of digitalization even after the crisis. In general we find that firms that faced a more difficult business situation before the crisis are affected more severely during the crisis. Moreover, we investigate the impact of the Swiss federal loan program (Bundeshilfe) on the business activities of Swiss firms. Specifically, we focus on the take up of firms and its interaction with the perceived business situation before and during the COVID-19 crisis. To this end, we develop a stylized theoretical model of financially constrained heterogeneous firms. We find that policy makers face a trade-off between immediate higher unemployment rates and long-term higher public spending. The former arises from a combination of a too strong economic impact of the COVID-19 lockdown and too low levels of loans provided by the government to financially distressed firms. Nevertheless, providing (too) high levels of loans to firms might create zombie firms that are going to default on their debt in the future leading to an increase in public spending.
License (according to publishing contract): Licence according to publishing contract
Departement: School of Management and Law
Organisational Unit: International Management Institute (IMI)
Appears in Collections:Publikationen School of Management and Law

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