Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options

Staff Discussion Notes, April 2, 2021

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Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options

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Bibliographic details

• Authors: Federico J Diez, Romain A Duval, Jiayue Fan, Jose M Garrido, Sebnem Kalemli-Ozcan, Chiara Maggi, Nicola Pierri
• Published: April 2, 2021
• Series: Staff Discussion Notes
• DOI: https://doi.org/10.5089/9781513574561.006

Summary

• The COVID-19 pandemic has increased insolvency risks, especially among small and medium enterprises (SMEs), which are vastly overrepresented in hard-hit sectors.
• Without government intervention, even firms that are viable a priori could end up being liquidated—particularly in sectors characterized by labor-intensive technologies—threatening both macroeconomic and social stability.
• The staff discussion note assesses the impact of the pandemic on SME insolvency risks and policy options to address them.
• The analysis quantifies the impact of weaker aggregate demand, changes in sectoral consumption patterns, and lockdowns on firm balance sheets and estimates the impact of a range of policy options for a large sample of SMEs in (mostly) advanced economies.

Key findings

• SMEs face elevated insolvency risks due to the pandemic-driven shock to demand and sectoral consumption patterns.
• Hard-hit sectors (where SMEs are overrepresented) are particularly vulnerable, especially those with labor-intensive technologies.
• Viable firms could be liquidated in the absence of policy support, generating adverse macroeconomic and social outcomes.

Quantitative approach and scope

• The paper quantifies impacts on firm balance sheets from:
  • Weaker aggregate demand
  • Changes in sectoral consumption patterns
  • Lockdowns
• The estimates cover a large sample of SMEs in (mostly) advanced economies.

Policy options and estimated impacts

• The note estimates the impact of a range of policy options aimed at reducing SME insolvency risks.
• Keywords and policy-relevant concepts emphasized in the analysis include:
  • “Quasi” Equity Injections
  • Bankruptcy
  • cash flow
  • cash position
  • equity injection
  • Financial statements
  • firm exit
  • illiquid firm
  • Insolvency
  • insolvent firm
  • Solvency

Publication and metadata

• Authors: Federico J Diez, Romain A Duval, Jiayue Fan, Jose M Garrido, Sebnem Kalemli-Ozcan, Chiara Maggi, Nicola Pierri
• Date: April 2, 2021
• Series: Staff Discussion Notes No. 2021/002
• Issue: 002
• Volume: 2021
• Pages: 28
• DOI: https://doi.org/10.5089/9781513574561.006
• Stock No: SDNEA2021002
• ISBN: 9781513574561
• ISSN: 2617-6750
• Subject classifications: Economic sectors, Financial institutions, Financial sector policy and analysis, Health, Public financial management (PFM)

Staff Discussion Note: "Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options" (Staff Discussion Notes 2021, 002).

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