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Firms’ financing conditions before and after the COVID-19 pandemic: a survey-based analysis

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Abstract

In this paper we analyze how the economic situation and financing conditions of euro area firms have changed along different crises that hit the euro area in the past 10 years, with a focus on the changes before and after the COVID-19 pandemic. We use the responses of a large sample of euro area firms to a qualitative business survey run on behalf of the European Central Bank/European Commission (Survey on the access to finance of enterprises—SAFE) since 2009. We describe how during the COVID-19 crisis, and despite generally accommodative financing conditions and state aid measures, turnover and profits of firms decreased sharply, having a dampening impact on firms’ employment and investment. As a result, firms’ financial vulnerability peaked during the COVID-19 crisis. Firms were signaling some deterioration in their access to finance as it is the case more recently due to the pass-through of increasing policy rates to the overall corporate financing conditions. We document that a deterioration in financing conditions has an impact on both firm-specific and aggregate growth. Based on firms’ perceptions, we find a link between real decisions of firms (in terms of investment and employment), macroeconomic developments and some key survey-based indicators of financing conditions.

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Data availability

Most of the underlying dataset is provided by the European Central Bank upon request.

Notes

  1. See for details https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/index.en.html.

  2. See Attolini et al. (2024) for the analysis of bankruptcy ratios and SAFE vulnerability.

  3. The insolvency indicator shows the percentage of firms in the SAFE sample which have negative profits and are unable to cover the losses with equity (as in Lalinski & Pal, 2022).

  4. Distance to insolvency is calculated as the inverse of the volatility of a firm’s return on equity, based on a sample of large euro area listed firms (Ampudia et al., 2022).

  5. See Banerjee et al. (2021).

  6. See Ferrando and Mulier (2015).

  7. Ferrando and Mulier (2022) use the SAFE data to assess the characteristics and behaviour of discouraged borrowers.

  8. Among unconventional monetary policies introduced in this period are: (1) the Outright Monetary Transactions (OMT) programme, launched in the summer of 2012; (2) the lowering of interest rates to negative territory in the summer of 2014; (3) the corporate sector purchase programme (CSPP), first announced in March 2016. It was launched in June 2016 to allow for large direct purchases of eligible (i.e. investment grade) bonds issued by companies based in the euro area. The programme was aimed at reducing debt-financing costs for large firms which could issue such bonds as an alternative financing source to bank loans, thereby freeing up more loan supply for smaller firms; (4) several rounds of targeted long term refinancing operations (TLTROs) launched to further foster corporate lending. The first series of TLTROs (TLTRO I) was announced in June 2014 and implemented in September 2014. The second series (TLTRO II) was announced in March 2016 and implemented in June 2016. Finally, a third series of TLTROs (TLTRO III) was announced in March 2019 and implemented starting from September 2019.

  9. For a detailed description of the indicator, see Ferrando and Gori (2021).

  10. See Durante et al. (2022).

References

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  • Attolini, C, Ferrando, A., & Rariga, J. (2024). Corporate vulnerabilities as reported by firms in the SAFE, ECB Economic Bulletin Issue no. 1/2024 (Forthcoming).

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Authors and Affiliations

  1. European Central Bank, Sonnemannstrasse 20, 60314, Frankfurt Am Main, Germany

    Annalisa Ferrando & Judit Rariga

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  1. Annalisa Ferrando
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  2. Judit Rariga
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Correspondence to Annalisa Ferrando.

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Ferrando, A., Rariga, J. Firms’ financing conditions before and after the COVID-19 pandemic: a survey-based analysis. J. Ind. Bus. Econ. (2024). https://doi.org/10.1007/s40812-024-00300-9

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