Credit constraints and the severity of COVID-19 impact: Empirical evidence from enterprise surveys.

The COVID-19 pandemic decreases firm revenue and raises the demand for liquidity, resulting in increased financial stress for firms throughout the world. In attempts to mitigate the impact of the COVID-19 crisis, governments have established a range of credit programs to provide credit to firms with poor liquidity. However, the efficacy of those relief programs has been low, and the relief funds do not reach the businesses most in need of liquidity injection, indicating a need to identify firms that are the most vulnerable during the crisis. We first combine the standard Enterprises Surveys and the follow-up surveys on the economic consequences of the COVID-19 pandemic. The sample firms are used to test how credit constraint conditions and firm characteristics affect the severity of the COVID-19 impact on firm performance. Our empirical results indicate that small firms and firms with limited access to finance are more likely to be severely affected by the crisis. Firms with foreign ownership and that are located in small cities are less at-risk. Compared to the 2008 Global Financial Crisis, COVID-19 less severely affects credit-constrained firms and foreign-owned firms and more severely affects small and medium-sized enterprises (SMEs).