The Impact of Generous Financial Support on Firm Entry and Exit in the Restaurant Industry during the COVID-19 Pandemic
46 Pages Posted: 29 Jan 2022
Date Written: January 27, 2022
This paper examines the impact of governmental generous financial support for dine-in restaurants that reduced their business hours in the context of the COVID-19 pandemic on the entry and exit of restaurants using administrative data. The descriptive analysis results show that the number of entries and exits during the pandemic are comparable to those in the previous year despite the decreased demand in the restaurant industry. Using the monthly municipality-level panel data constructed by the administrative data and a difference-in-differences estimation, which uses the numbers of dine-in and other types of restaurants as the treatment and control groups, respectively, 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 supports. Given that there was no significant difference in the entries and exits between the treatment and control groups before the implementation of this policy, this generous financial support led to excessive entries.
Keywords: COVID-19, restaurant industry, government support, entry and exit
JEL Classification: H32, L20, L83, M13
Suggested Citation: Suggested Citation