Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis

27 Pages Posted: 20 May 2020

See all articles by Lukas Buchheim

Lukas Buchheim

Ludwig Maximilian University of Munich (LMU)

Jonas Dovern

Friedrich-Alexander University

Carla Krolage

ifo Institute

Sebastian Link

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; Ludwig Maximilian University of Munich (LMU)

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

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 shutdown—which, at this point of the crisis, exhibit plausibly random variation—are 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: expectations, firm behaviour, COVID-19, shutdown, employment, investment

JEL Classification: D220, D840, E230

Suggested Citation

Buchheim, Lukas and Dovern, Jonas and Krolage, Carla and Link, Sebastian, Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis (2020). CESifo Working Paper No. 8304, Available at SSRN: https://ssrn.com/abstract=3603773 or http://dx.doi.org/10.2139/ssrn.3603773

Lukas Buchheim (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Jonas Dovern

Friedrich-Alexander University ( email )

Erlangen-Nuremberg
Germany

Carla Krolage

ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Sebastian Link

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

HOME PAGE: http://www.cesifo-group.de/portal/page/portal/ifoHome/f-about/f3aboutifo/50ifostaff/_ifocv_link_s

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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