ABSTRACT
The recent outbreak of COVID-19 has had colossal repercussions for all economic agents including households, corporations, and governments worldwide. Each economic agent responded in their own way to mitigate or at least diminish the scale of that impact. Small and medium-sized enterprises (SMEs) also countered the COVID-19 pandemic to their highest capacity despite being more vulnerable to crises. Many SMEs experienced shutdowns or declared bankruptcy due to the ineptitude and lack of financial resources or effective strategic response to cope with this unprecedented shock. In this paper, we assess the impact of the COVID-19 pandemic coping strategies such as adjusting the process and product, shifting business activity online, and remote working arrangements on SMEs’ access to finance. Using the World Bank’s COVID-19 impact survey data collected between 2020 and mid-2021 from 42 countries, we find that better strategies adopted by SMEs increase their likelihood of getting new credit from government and commercial banks. The results remain robust to alternative test settings. Our findings offer significant and timely contributions to SMEs’ access to finance and to the practicing managers on adopting and adjusting strategies in response to crises or disruptions.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Availability of data and material
The data that support the findings of this study are publicly available from COVID-19 Impact Assessment Survey by World Bank in response to the outbreak of COVID-19, World Bank Enterprise Survey, World Development Indicators and World Governance Indicators
Code availability
The code used can be provided under request addressed to the corresponding author
Notes
2 Credit guarantee schemes are an important form of policy that provides guarantee to share the risk in case of default. See more on CGS in response to COVID-19 in Europe https://www.ecb.europa.eu/pub/economic-bulletin/focus/2020/html/ecb.ebbox202006_07~5a3b3d1f8f.en.html and in Africa https://issuu.com/afi-global/docs/credit_guarantee_schemes_facilitating_msme_financi?fr=sZmQzZDE1MDA4Mw.
3 For details see: https://www.enterprisesurveys.org/en/covid-19.
4 The choice of access to finance and strategy measures is dictated by the data availability in the respective survey.
5 This highlights the importance of each additional adopted strategy, the likelihood of getting credit and financial support increases with each additional adoption of the strategy.
6 The caliper distance of 0.01 and without replacement options help ensure that firms in both groups (i.e. treatment and control) are same based on the control variables and each treatment firm is matched with only one control firm.
7 The results of the PSM analysis are not reported for the sake of brevity but available upon request.
8 The unreported first stage results show a positive and highly significant coefficient on INNOVATION, suggesting a positive association with COVID-19 related strategy adoption. Hence, justifying the use of INNOVATION as an instrumental variable. These results are not reported for the sake of brevity but available upon request.