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

_Staff Discussion Notes, April 2, 2021_

## Source details

**Canonical URL:** [Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options](https://www.imf.org/en/publications/staff-discussion-notes/issues/2021/03/25/insolvency-prospects-among-small-and-medium-sized-enterprises-in-advanced-economies-50138)

## Other formats

- [Markdown version](/en/publications/staff-discussion-notes/issues/2021/03/25/insolvency-prospects-among-small-and-medium-sized-enterprises-in-advanced-economies-50138/index.md)
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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

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### 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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_Source: https://www.imf.org/en/publications/staff-discussion-notes/issues/2021/03/25/insolvency-prospects-among-small-and-medium-sized-enterprises-in-advanced-economies-50138_