Productivity and firm exit during the COVID-19 crisis: cross-country evidence

This paper examines whether the economic crisis induced by the COVID-19 pandemic exhibits a Schumpeterian "cleansing” of less productive firms. Using firm-level data collected for 34 economies up to 18 months into the crisis, the study finds that less productive firms have a higher probability of permanently closing during the crisis, suggesting that the process of cleansing out unproductive activities is occurring. The paper also uncovers strong and negative relationships of firm exit with digital presence and with innovation. These relationships are driven by small firms. The study further finds that a burdensome business environment increases the probability of firm exit, also driven by small firms, and that a negative relationship exists between firm exit and age. Finally, evidence shows that the cleansing process is disrupted in countries which have introduced policies imposing a moratorium on insolvency procedures.Plain English SummaryThe purpose of this analysis is to investigate whether firms that are more productive are less likely to cease operation during the economic crisis induced by the COVID-19 pandemic. To verify this hypothesis, the paper uses data on firm characteristics, productivity, and status of operation from 34 countries. The data on firm characteristics and productivity were collected before the crisis, while data on the operating status were collected within 18 months since the appearance of the coronavirus. The results of the paper show that indeed, more productive firms are more likely to survive the crisis. In addition, businesses that have been in operation for longer, or ones which have a website or have introduced a new product in the years before the crisis are more likely to continue existing. The positive role of digitalization and innovation is true especially for small firms. Conversely, those businesses which have to spend more time in compliance with government regulations are less likely to survive. The policy implications show the importance of digitalization and innovation, the vulnerabilities of small firms, and the significance of good governance.

Productivity growth over the business cycle: cleansing effects of recessions

This paper investigates the impact of recent recessions on the origins of productivity growth. We show how business cycles affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity.Plain English SummaryDuring recessions, governments support firms via temporary unemployment programs to save jobs. A side effect is that job reallocation and exit of low-productive firms can be distorted, while such cleansing effects typically spur productivity growth. This paper investigates how recessions affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity. As many developed economies struggle with a slowdown in productivity growth, it is important that policy makers understand the impact of recessions on the micro origins of productivity growth and are aware of how temporary policies during recessions could affect long-term productivity growth.

Working from home for good? Lessons learned from the COVID-19 pandemic and what this means for the future of work

In the wake of the COVID-19 pandemic, more firms than ever before have enabled their employees to work from home. Based on a representative firm survey in Germany, surveying 2.000 firms per month throughout the course of the pandemic (October 2020 until June 2022), this paper provides suggestive evidence concerning the effects of working from home (WFH) at different points in time during the pandemic and discusses implications for the future of work. We assess the potential of WFH in Germany to be 25–30% of private-sector employees. On the firm side, we find that higher WFH use is positively related to business success during the crisis, with increased employee productivity and employees working more hours when remote being possible mechanisms. Larger firms in particular are open towards expanding their WFH offerings in the future. During the pandemic, firms have experienced that WFH has worked well in many respects (e.g., productivity of employees, quality of work performed) and, for the future, they are willing to facilitate WFH in order to give their employees more flexibility, and to be considered an attractive employer. However, working on site brings advantages (e.g., communication, cooperation and onboarding of new employees) firms will not want to sacrifice, pointing towards a hybrid model of work.

The effect of COVID-19 on Indian stock market volatility: can economic package control the uncertainty?

Purpose The stock market has shown fluctuating degrees of volatility because of the recent COVID-19 pandemic in India. The present research aims to investigate the effect of the COVID-19 on the stock market volatility, and whether the economic package can control the market volatility or not, measured by a set of certain sector-level economic features and factors such as resilience variables. Design/methodology/approach We examine the correlation matrix, basic volatility model and robustness tests to determine the sector-level economic features and macroeconomic factors helpful in diminishing the volatility rising because of the COVID-19. Findings The outcomes of this study are significant as policymakers and financial analysts can apply these economic factors to set policy replies to handle the unexpected fluctuation in the stock market in sequence to circumvent any thinkable future financial crisis. Originality/value The originality of the paper is to measure the variables affecting the stock market volatility due to COVID-19, and understand the impact of capital market macroeconomic variables and dummy variables to theoretically explain the COVID-19 impact on stock market volatility.

Time-varying herding spillover for emerging countries: evidence from BRIC countries and Turkey

Purpose This study aims to investigate herding spillover in BRIC (Brazil, Russia, India and China) countries and Turkey under different regimes by using a time-varying approach. Design/methodology/approach The authors used the structural change model of Bai and Perron (1998). Findings The results indicate that there is an evidence of herding behaviour in the Chinese stock market in two different regimes. These regimes cover the recent global financial crisis and the period of Hong Kong protests. We also report the evidence of herding behaviour in the Turkish stock market in the regime covering the COVID-19 period. Findings of herding spillover show that there is a two-way herding among Russia and China during crises and high volatile regimes. Similarly, there exists a cross-country herding among Brazil and India during crisis regimes. Also, there is herding spillover from Turkey to Russia, China and Brazil during the global financial crisis, post-European debt crisis and COVID-19 periods respectively. Furthermore, it is also evident that there is a herding spillover from Russia and China to India during the period covering COVID-19. Originality/value To the best of the authors' knowledge, this is the first study that uses structural change approach to identify herding behaviour spillovers from the US stock market to BRIC countries and Turkey and to investigate the cross-country herding behaviour among BRIC countries and Turkey.

Drop-out, stop-out or prolong? The effect of COVID-19 on students' choices

Purpose The aim of the paper is to identify the causal effect of the COVID-19 induced crisis on students' decisions about their educational plans. The authors hypothesise that students adjusted their decisions by delaying graduation, dropping out or change the field of education because of increased uncertainty about future employment and monetary returns. Design/methodology/approach The empirical approach is based on a survey done during the first wave of COVID-19 in Slovenia. The probability of dropping out, prolonging or stop-out is designed by applying probit and probit with insturmental variables empirical model. Findings Primary orientation towards work increases the probability of dropping out and financial constraints increase the probability of prolonging studies. The same holds after accounting for endogeneity. However, the authors do not find that poor job expectations due to COVID-19 affect students' decisions to prolong, drop-out or stop-out. The authors also find that the primary orientation toward work or study explains the differences in the probability of each outcome that is not influenced by enrolment in a particular field of study. Research limitations/implications The results cannot be read as an objective prediction of the impact of the COVID-19 crisis on college failures. However, the study provides insight into how students' expectations change their intentions to prolong, drop-out, or stop-out during periods of high uncertainty. The extent, to which measured intentions are realised, however, is uncertain. Practical implications Understanding the response diversity and motives behind students' study decisions represents extremely valuable insights for economic policy. Mapped apprehensions, augmented by heterogeneity in personal and financial characteristics, are relevant for policymakers. In terms of future research, it would be interesting to analyse what changes occurred over a five-year period, specifically which field of study was most affected by students' adjusted plans due to the pandemic. Social implications Students have always been a special group in the labour market. After the initial shock of closing activities, studying online and the drastic decrease in student work due to COVID-19, the decision was made in spring 2020 to continue on the chosen path or not. This paper provides insight into the changing decision students made about their educational plans. Originality/value This paper is one of the first to highlight the implications of COVID-19 for the adaptation of student plans in the transition from school-to work in Europe. It departs from the classical literature of college failures, as specific macroeconomic conditions influence students to reconsider their educational decisions. Moreover, the paper also contributes to the rapidly growing literature on the impact of the COVID-19 pandemic on household-level labour market outcomes, particularly with respect to job search and labour supply decisions in general.