Supporting Smes During Covid-19: The Case for Targeted Equity Injections

10 Pages Posted: 8 Dec 2021

See all articles by Federico J Díez

Federico J Díez

International Monetary Fund (IMF)

Romain Duval

International Monetary Fund (IMF)

Chiara Maggi

International Monetary Fund (IMF)

Date Written: 2021

Abstract

We analyze the potential role of equity injections in addressing insolvency risks among small and medium-sized enterprises (SMEs) after the COVID-19 crisis. Building on firm-level balance sheet projections for a sample of European economies, we simulate selected policy interventions and assess the effectiveness and efficiency of their impact on insolvencies. We find that equity injections are quite effective at dampening the rise in insolvencies. Efficiency requires careful targeting, however; under one illustrative scenario, the cost of a program targeting only those SMEs worth saving is just a tenth of the cost of an untargeted approach directed to all insolvent firms. Overall, our paper provides a case for governments to rely more on targeted equity injections in responding to shocks that trigger mass solvency risks.

Keywords: Insolvency, Bankruptcy, small and medium-sized enterprises, SMEs, equity injections, COVID-19

Suggested Citation

Díez, Federico J and Duval, Romain and Maggi, Chiara, Supporting Smes During Covid-19: The Case for Targeted Equity Injections (2021). Available at SSRN: https://ssrn.com/abstract=3963635 or http://dx.doi.org/10.2139/ssrn.3963635

Federico J Díez (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Romain Duval

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Chiara Maggi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
148
PlumX Metrics