Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence By Safi Ullah Khan Abstract We explore whether financing constraints affected the ways in which small and medium-sized enterprises navigated through the economic disruptions caused by the COVID-19 pandemic. We draw on data from a novel source, the COVID-19 Impact Follow-up Surveys conducted in 19 countries by the World Bank Enterprise Analysis Unit as a follow-up to enterprise surveys conducted in these countries prior to the COVID-19 outbreak. We find that previous bank-lending credit constraints magnified the effects of the pandemic. More specifically, credit-rationed firms were more likely to experience greater liquidity and cash flow problems and more likely than unconstrained firms to be delinquent in meeting their obligations to financial institutions during the economic crisis. Furthermore, these firms were less likely to have access to bank funding as a principal source of financing to address pandemic-induced cash flow and liquidity problems during the COVID-19 outbreak. We further find that credit-constrained firms were more likely to use trade credit, delay payments to suppliers or employees, and rely on government grants to cope with pandemic-related liquidity and cash flow problems. We find little evidence that credit-rationed firms were more likely to raise equity capital during this economic crisis. Finally, we find that financing constraints were more likely to hamper firms' ability to adjust business operations in response to exogenous shocks. This study contributes to the literature on the impact of credit constraints on firm behavior in times of crisis.

Source: https://www.sciencedirect.com/science/article/pii/S0275531921001665

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Question 1 The Covid-19 pandemic evolved from a public health emergency into a full-blown global economic crisis in a matter of months causing one of the deepest recessions since the 1930s. Critically discuss the impact of pandemics on financial markets.

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Pandemics like the COVID19 crisis can have significant impacts on financial markets due to the wides... View the full answer