System Relevance and Firm Performance Due to COVID-19

We study the impact of COVID-19 on firm performance. Using financial accounts of a large number of German firms, we document that industry affiliation is an important economic dimension of the crisis. Motivated by this fact, we analyze an important industry-specific regulation, system relevance, whi...

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Bibliographic Details
Published inGerman economic review (Oxford) Vol. 24; no. 4; pp. 349 - 410
Main Authors Böhm, Michael J., Qendrai, Pamela
Format Journal Article
LanguageEnglish
Published De Gruyter 15.12.2023
Subjects
COVID-19
firm performance
H12
industry shocks
L25
system relevance
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Summary:We study the impact of COVID-19 on firm performance. Using financial accounts of a large number of German firms, we document that industry affiliation is an important economic dimension of the crisis. Motivated by this fact, we analyze an important industry-specific regulation, system relevance, which allows businesses to remain open in times of lockdown and other restrictions. A difference-in-differences estimation strategy shows that relative revenues of system-relevant firms increase by 6–9 percent and profits by 17–25 percent due to COVID. Controlling for channels that are arguably not driven by the system-relevance regulation, the impact on revenues decreases but remains significant. Overall, results indicate that regulations affecting the ability to operate as well as industry-level shocks play important roles for firm performance during a pandemic-induced crisis.
ISSN:1465-6485
1468-0475
DOI:10.1515/ger-2023-0070