Publication type: Article in scientific journal
Type of review: Peer review (publication)
Title: COVID-19 : guaranteed loans and zombie firms
Authors: Zoller-Rydzek, Benedikt
Keller, Florian
et. al: No
DOI: 10.1093/cesifo/ifaa014
Published in: CESifo Economic Studies
Volume(Issue): 66
Issue: 4
Pages: 322
Pages to: 364
Issue Date: 2020
Publisher / Ed. Institution: Oxford University Press
ISSN: 1610-241X
Language: English
Subjects: COVID-19; Expectation; Financial constraint; Firm behavior; Zombie firm
Subject (DDC): 330: Economics
Abstract: Based on a survey (7–13 April 2020) we evaluate the reaction of Swiss firms towards the COVID-19 crisis. Firms show little pro-active reactions towards the crisis, but decrease their business activities. The firms in the survey report that the decline in foreign demand is the single most important reason for their deteriorating business situation. 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. 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 (demand drop) and too low levels of loans provided. Nevertheless, providing (too) high levels of loans to firms creates zombie firms that are going to default in the future leading to an increase in public spending. (JEL codes: D22, D25, D84, and G33)
Fulltext version: Published version
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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