VoxEU Column COVID-19 Productivity and Innovation

Heterogeneous firm-level impact of Covid-19 and the role of vaccine developments in recovery expectations

The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock. The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

While the Covid-19 crisis is unique in many dimensions, two aspects are worth highlighting: first, its heterogeneous impact across sectors, regions, workers, and firms (Puy and Rawdanowicz 2021, Bloom et al. 2021, Crossley et al. 2021); second, the presence of an unprecedented level of uncertainty both on the epidemiological and economic side, which has only started to decrease recently thanks to vaccine developments (Altig et al. 2020, Ahir et al. 2021). An uncertain recovery path generally makes firms more cautious, possibly retarding their investment and hiring decisions. 

A better understanding of the consequences of the crisis along these dimensions is key for policymakers. In particular, targeted and predictable policies crucially depend on identifying the type of firms most affected by the shock and understanding how uncertainty shapes their perspectives and decision-making. In Fernández-Cerezo et al. (2021), we exploit the information provided by the new Banco de España Business Activity Survey (EBAE for its abbreviation in Spanish) in order to shed light on these issues. The EBAE survey was launched in November 2020 and 4,004 valid responses were received. It included a set of questions on how far turnover and employment were from pre-crisis levels, the main factors hindering firms' activity during the pandemic, and their recovery expectations. A unique feature of this survey is that it can be matched to balance sheet data allowing us to investigate the impact of the shock depending on firms' ex-ante characteristics, such as productivity, size, or age.

The impact of the Covid-19 shock across firms

Given the characteristics of the Covid-19 shock, the wide heterogeneity of its impact across industries is well known with services sectors, especially those more dependent on social interaction, disproportionally hit in 2020. But heterogeneity is also very large and potentially more interesting among other dimensions. First, once we control for sectoral differences, firm size is a key variable explaining the severity of the effects of the pandemic in firms´ turnover. Figure 1, Panel A shows the changes in turnover for different size brackets in deviations from the average change in the sector. Smaller firms suffered a steeper decline in their activity in 2020 than larger firms belonging to the same sector of activity. In particular, turnover fell by 1.3 percentage points more than the sector mean at firms with fewer than ten employees, while at larger firms it was 4.4 percentage points higher than the average. 

The likeliest explanation for these differences is the greater vulnerability to shocks such as that triggered by Covid-19, which in turn may be due to small firms having less access to borrowed funds and to their reduced product and market diversification. Figure 1, Panel B shows that less productive firms (in terms of their total factor productivity, or TFP) suffered a larger decrease in turnover. These findings indicate that smaller and less productive firms were hit relatively harder by the Covid-19 shock within each sector. Moreover, this pattern remains robust when accounting for other firm characteristics as well as sector-region fixed effects (see Fernández-Cerezo et al. 2021). We interpret this result as suggestive evidence in favour of the cleansing effects of the Covid-19 shock, typically associated with crisis episodes not only across sectors but also within sectors. In short, this crisis may trigger a potentially productivity-enhancing process of resource reallocation within industries.

Figure 1 Heterogeneity of the impact of Covid-19 on turnover

Panel A: By size (employment)  



Panel B: By total factor productivity (TFP)


Notes: Average year-on-year percentage change in turnover, by firm size (employees - Panel A) and productivity (TFP – Panel B), as deviations from the industry mean.

Uncertainty, recovery perspectives, and vaccines

Regarding uncertainty, the EBAE survey asked firms about the main factors affecting firms' activity. Pandemic and policy uncertainty took the lead with around 80% of firms considering them as very relevant limiting factors, while other aspects, such as the evolution of demand, unpaid receivables, problems in access to financing, or supply chain disruptions, were deemed less of a concern (Figure 2). Furthermore, firms were asked to report their expectations about the timing of recovery to pre-crisis levels. Interestingly, uncertainty perceptions and recovery expectations do not differ significantly across firms within the same sector, which suggests that the role of uncertainty is mostly symmetric across firms.

Figure 2 Factors conditioning firms’ activity



Notes: Responses to a multiple-choice question in which firms indicated whether each option was deemed as a very relevant limiting factor in firms’ activity.

Finally, a fortunate coincidence was that the effectiveness of the Pfizer vaccine was announced on 9 November 2020, while the survey was carried during the fortnight between 4 November and 19 November 2020. Therefore, we can use the unexpected announcement as a natural experiment to compare the recovery expectations of firms that filled the survey before and after 9 November. Figure 3 shows the differences in firms’ recovery expectations before and after the vaccine announcement. The left panel indicates that the share of firms expecting full recovery by the end of 2021 increased by nearly 25% after the vaccine announcement, while the right panel shows that the expected time-to-recovery was also reduced.1 Moreover, the differences reported in Figure 3 are statistically significant when accounting for firm’s characteristics within the same sector-region pair and remain robust when only considering responses the three days immediately before and after the announcement (Fernández-Cerezo et al. 2021). All in all, the announcement of the Pfizer vaccine substantially improved firms’ recovery prospects. This finding points to the importance of forward guidance by public policies and, to the extent possible, offering a predictable environment to economic agents conducive to long-term planning.

Figure 3 Recovery expectations before and after the vaccine announcement


Notes: Share of firms expecting full recovery by 2021 (left panel), and average time for recovery (right panel) , for firms responding before the announcement of the vaccine (blue) and after the announcement of the vaccine (red). Values are normalized so that one is the average response of the sample. 

Authors’ note: The views expressed here are our own and do not represent those of Banco de España or the Eurosystem.


Ahir, H, N Bloom and D Furceri (2021), “Why global uncertainty is declining”,, 18 May. 

Altig, D, S Baker, J M Barrero, N Bloom, P Bunn, S Chen, S J Davis, J Leather, B Meyer, E Mihaylov, P Mizen, N Parker, T Renault, P Smietanka and G Thwaites (2020), “Economic uncertainty before and during the COVID-19 pandemic”, Journal of Public Economics 191: 104274.

Apedo-Amah, M C, B Avdiu, X Cirera, M J Vargas Da Cruz, E A R Davies, A G Grover, L Iacovone, U Kilinc, D Medvedev, F O Maduko, S Poupakis, J Torres Coronado and T T Tran (2020), “Unmasking the impact of covid-19 on businesses: firm level evidence from across the world”, Policy Research Working Papers, World Bank.

Bloom, N, R Fletcher and E Yeh (2021), “The impact of COVID-19 on US firms”, NBER Working Paper No. w28314.

Crossley, T, P Fisher and H Low (2021), “The heterogeneous and regressive consequences of COVID-19: Evidence from high quality panel data”, Journal of Public Economics 193: 104334.

Fernández-Cerezo, A, B González, M Izquierdo and E Moral-Benito (2021), “Firm-level heterogeneity in the impact of the COVID-19 pandemic”, Banco de España Working Paper No. 2120.

Puy, D and L Rawdanowicz (2021), “Covid-19 and the corporate sector: Where we stand”,, 22 June.


1 Recovery in 2021 refers to a dummy variable that takes the value 1 if the firm expects to fully recover pre-crisis levels of activity by the end of 2021. Recovery timing captures the time-to-recovery based on firms’ responses to a multiple-choice question taking values 1, 2, 3, 4 and 5 if the firm expects recovery already in 2020, 2021, 2022, and later than 2022, respectively (excluding firms that answered too uncertain and already recovered).

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