The Covid crisis represented a significant negative shock to many firms who experienced abrupt decreases in their revenues, as well as increased costs due to public health rules.
The sudden decrease in revenues made it difficult for many firms to cover their fixed costs and maintain employment.
Government policies attempted to support firms by compensating them for unavoidable fixed costs, by sharing employee expenses, and by postponing and reducing tax payments.
The compensation program aimed to cover part of the firm’s unavoidable fixed costs if the decrease in revenues was above a certain threshold. The program used monthly intervals in the first wave and bi-monthly intervals in the second wave.
Family firms were slightly less likely than nonfamily firms to apply for and receive the compensation. The table below shows the percentage of family firms among firms receiving compensation in each period. The last line shows the overall percentage of family firms in the population for comparison.
The decrease in revenues in 2020 compared to 2019 for firms receiving compensation through the Covid crisis was large and similar for family and nonfamily firms:
The aim of the compensation program was to help firms facing decreases in their revenues cover their unavoidable fixed costs. While in normal times (2019) those costs are a small proportion of a firm’s revenues, the ratio increased abruptly during the Covid crisis. The first graph below presents the fixed costs of firms receiving compensation relative to their pre-crisis (2019) revenues. The second graph presents the fixed costs relative to the firms’ revenues during the crisis.
The graphs show that fixed costs that are relatively unimportant in normal times can become a burden when revenues suddenly decrease. This operating leverage effect is important in evaluating public support policies.
The distribution of firms receiving compensation is concentrated in industries most affected by the Covid shock:
The compensation program was also more important for firms in less central areas:
The Covid crisis interrupted the activity of many firms and their employees.
It has been argued in previous studies that family firms maintain their relationship with their employees through economic downturns. We find that family firms were significantly less likely to fire employees during the Covid crisis: