Firm-Level Expectations and Behavior in Response to the Covid-19 Crisis
27 Pages Posted: 19 May 2020 Last revised: 31 Jan 2023
There are 2 versions of this paper
Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis
This paper studies the determinants of firms' business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdownÃ¢â¬âwhich, at this point of the crisis, exhibit plausibly random variationÃ¢â¬âare an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.
Keywords: shutdown, COVID-19, firm behavior, expectations, employment, investment
JEL Classification: D22, D84, E23
Suggested Citation: Suggested Citation