The Impact of Generous Financial Support on Firm Entry and Exit in the Restaurant Industry during the COVID-19 Pandemic

Abstract

This study examines the impact of governmental generous financial support for restaurants that reduced their business hours on the entry and exit of dine-in restaurants during the coronavirus disease 2019 pandemic. Our descriptive analysis results show that the number of entries and exits during the pandemic are comparable to those in the previous year. Using monthly municipality-level panel data and a difference-in-differences estimation, we find an increase in the entries and a decrease in the exits of dine-in restaurants after December 2020, when the local governments generously expanded their financial support. This generous financial support led to excessive entries.

Keywords: COVID-19; entry and exit; government support; restaurant industry

JEL Classification: H32, L20, L83, M13