DP15323 Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis

Author(s): Pierre-Olivier Gourinchas, Sebnem Kalemli-Özcan, Veronika Penciakova, Nick Sander
Publication Date: May 2021
Date Revised: January 2022
Keyword(s): bankruptcy, business failure, COVID-19, SMEs
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15323

We develop a flexible framework for tracking business failures during economic downturns. Our framework combines firm-level data with a model of cost-minimization where firms react to a rich set of shocks and fail if illiquid. After verifying that our methodology approximates past official failure rates, we apply it to the COVID-19 crisis in 11 countries. Absent government support, SME failures would have increased by 6.15 percentage points, representing 3.15 percent of employment. We find little threat to financial stability. Commonly implemented COVID-19 policies saved firms but were costly because funds were directed to firms that could survive without support.