世界发展银行-Survival-of-Firms-during-Economic-Crisis_31页_1mb

Summary of "Survival of Firms during Economic Crisis"

Core Content

This policy research working paper investigates how firms survive during economic crises by analyzing the liquidity and survival times of nearly 7,000 firms across 12 high- and middle-income countries. The study uses data from the World Bank's Enterprise Surveys to estimate survival times under a hypothetical scenario of extreme economic distress, where firms have no incoming revenues and must cover only fixed costs.

Main Findings

• Survival Times: The median survival time of firms across industries ranges from 8 to 19 weeks, while the average survival time ranges from 12 to 38 weeks.
• Country Variations:
  • The median Ukrainian firm has the shortest survival time at 7 weeks.
  • The median Peruvian firm has the longest survival time at 16 weeks.
• Sector Variations:
  • Retailers have the shortest median survival time at 8 weeks.
  • Manufacturing firms (especially chemical, plastic, and mineral products) have the longest median survival time at 19 weeks.
  • Construction firms have a median survival time of 9 weeks.
• Mean Survival Time:
  • The mean survival time is generally longer than the median, indicating heterogeneity among firms.
  • The construction sector can survive for 12 weeks, while manufacturing sectors can last up to 38 weeks on average.

Key Points

• Schumpeterian Theory: The paper challenges Schumpeter's theory of creative destruction, which suggests that less productive, smaller, and younger firms are more likely to exit during economic downturns. The data shows that firm survival is not significantly related to productivity, size, or age.
• Exceptions:
  • In Greece, Kenya, and Peru, survival times are associated with productivity.
  • In Kazakhstan, larger firms have longer survival times.
  • In Jordan and Morocco, older firms are more resilient.
• Liquidity Constraints:
  • Firms in Ukraine are the most liquidity constrained.
  • In many countries, retained earnings account for a large portion of working capital financing, with some firms relying heavily on external financing.
• Financial Assumptions:
  • The study assumes that firms can access external financing at the same level as before the crisis.
  • Wages and other employee expenses are assumed to be covered by government programs.
  • A 9% net profit margin is assumed for non-manufacturing sectors due to data limitations.

Methodology

• Data Sources: The study uses data from the World Bank's Enterprise Surveys across 12 countries, including Colombia, Greece, Italy, Jordan, Kazakhstan, Kenya, Morocco, Peru, Portugal, Russia, Turkey, and Ukraine.
• Sample Size: A total of 11,759 interviews were conducted, with 6,897 firms providing full income statement and balance sheet data.
• Survival Time Calculation:
  • Survival time is calculated using the formula $ s_i = \frac{\pi_i + W_i}{F C_i} $, where $ \pi $ is net retained earnings, $ W $ is available liquidity from external sources, and $ F C $ is fixed costs.
  • Fixed costs are derived from total costs minus labor costs.
• Productivity Measures:
  • Three productivity proxies are used: capacity utilization, total factor productivity (TFP), and value-added productivity.
  • These measures are based on economic data and are only available for manufacturing firms.
• Alternative Firm Characteristics:
  • The study also tests the effect of firm size (measured by full-time permanent and temporary workers) and age on survival times.
  • The results show no statistically significant association between firm size, age, or productivity and survival times in most cases.

Policy Implications

• Government Support: Existing government programs can extend the survival period of firms, especially labor-intensive sectors and those with established credit lines.
• Credit Constraints: During economic crises, credit constraints can lead to a more indiscriminate exit of firms, regardless of their productivity or efficiency.
• Systemic Distress: The paper highlights the importance of systemic financial arrangements to prevent prolonged economic distress and minimize losses in output and employment.

Conclusion

The study concludes that the Schumpeterian theory of creative destruction is not supported by the data. Economic crises do not selectively eliminate inefficient firms but instead lead to widespread liquidity issues across all firm sizes and ages. The findings underscore the need for targeted government interventions and robust financial support mechanisms to aid firms during extreme economic distress.