Using Managers' Expectations for Ex-Ante Policy Evaluation: Evidence from the COVID-19 Crisis

39 Pages Posted: 7 Dec 2021

See all articles by Kohei Kawaguchi

Kohei Kawaguchi

Hong Kong University of Science and Technology

Naomi Kodama

Meiji Gakuin University

Hiroshi Kumanomido

Hitotsubashi University, Graduate School of Economics

Mari Tanaka

Hitotsubashi University, Graduate School of Economics

Date Written: December 4, 2021

Abstract

Evaluation of the impacts of government policies during an economic crisis is often delayed until the outcomes are realized. Policies can be better guided if they can be evaluated amid a crisis, before the realization of outcomes. This study examines whether survey data on the expectations of small business managers can be used to evaluate two high-stake subsidies for firms amid the COVID-19 crisis in Japan, namely, Subsidy Program for Sustaining Businesses (SPSB) and Employment Adjustment Subsidy (EAS). Thus, we evaluate the accuracy of managers' expectations, estimate the impact of subsidies on the expected firm survival, and compare it with the estimated impact on realized survival. We find that the managers' expectations on their future sales, survival rate, and the possibility of receiving these subsidies predict the realized outcomes, although they were highly pessimistic about their survival rates. We find that managers adjust their expectations by learning from past forecasting errors throughout the crisis. We find that the estimated impacts of the SPSB on the expected survival rates have the same sign as the estimated impact on the realized survival rates, but the size is more than twice. The estimated impacts of the EAS are both insignificant. Therefore, although its impact may be overestimated, managers' expectations are useful for selecting an effective policy.

Keywords: Firm forecast, Policy evaluation, Small business, COVID-19, Subsidies

JEL Classification: D80, E66, L50, H20

Suggested Citation

Kawaguchi, Kohei and Kodama, Naomi and Kumanomido, Hiroshi and Tanaka, Mari, Using Managers' Expectations for Ex-Ante Policy Evaluation: Evidence from the COVID-19 Crisis (December 4, 2021). Available at SSRN: https://ssrn.com/abstract=3977352 or http://dx.doi.org/10.2139/ssrn.3977352

Kohei Kawaguchi (Contact Author)

Hong Kong University of Science and Technology ( email )

6070 LSK Building, HKUST
Clear Water Bay
Kowloon
Hong Kong

Naomi Kodama

Meiji Gakuin University ( email )

Shirokane-dai 1-2-37, Minato-ku
Tokyo, Tokyo, 108 108-8636
United States

Hiroshi Kumanomido

Hitotsubashi University, Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

Mari Tanaka

Hitotsubashi University, Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

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