Dataset Information

Green management, access to credit, and firms’ vulnerability to the COVID-19 crisis

ABSTRACT: Abstract This paper investigates the consequences of the COVID-19 crisis on firms’ performance and financial vulnerability. Exploiting longitudinal firm-level data from the World Bank’s “Enterprise Surveys follow-up on COVID-19” for 20 European countries, we assess whether green management quality and pre-pandemic credit access difficulties affect firms’ ability to withstand the negative impact of the pandemic. Our results indicate that green firms are more resilient to the pandemic shock. In particular, the likelihood of pandemic-induced drops in sales and liquidity significantly decreases as the quality of green management improves. Conversely, prior financing constraints strongly exacerbate the pandemic’s impact on firms’ performance and amplify liquidity stress and financing problems. Credit-constrained enterprises are not only more likely to experience liquidity shortages and repayment problems, but they also face higher difficulties in accessing bank financing. The COVID-19 crisis has also hampered the beneficial role that green management exerted on access to credit in the pre-pandemic period. During the pandemic, firms with sound environmental management practices do not benefit from improved access to finance and have a lower demand for credit, possibly suggesting a slowdown in their green investment activities.

Supplementary information

The online version contains supplementary material available at 10.1007/s11187-023-00759-1. Green firms are more resilient to the COVID-19 shock, while prior credit access difficulties strongly exacerbate the pandemic’s impact on businesses. Using data on firms from 20 European countries, we find that enterprises with sound environmental management practices have a lower probability of pandemic-induced reductions in sales and liquidity. Pre-pandemic financing constraints significantly impair firms’ economic and financial performance and increase difficulties in accessing bank credit during the COVID-19 crisis. Our results suggest that public policies, aimed at encouraging firms’ environmentally sustainable behaviours and at supporting their access to credit, may contribute to strengthen the resilience of the economic system to unexpected shocks and favour the transition to a sustainable economy. Furthermore, the awareness of the competitive advantages offered by eco-sustainable practices may represent an incentive form firms to improve their environmental management quality and increase investment in green technologies.

Supplementary information

The online version contains supplementary material available at 10.1007/s11187-023-00759-1.

SUBMITTER: Aristei D

PROVIDER: S-EPMC10113997 | biostudies-literature | 2023 Apr

REPOSITORIES: biostudies-literature

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Project description:This paper investigates firms’ access to bank credit in eleven euro area countries over the periods 2014–2019. Exploiting firm-level longitudinal data, we analyse loan demand and credit rationing probabilities, accounting for sample selection, unobserved heterogeneity and state dependence. Empirical results show that small and informationally opaque businesses, with deteriorated public support and credit history, face greater difficulties in obtaining bank loans. Furthermore, we provide evidence of a significant degree of state dependence in access to credit. In particular, firms that have already experienced credit restrictions are more likely to face further constraints, while enterprises that applied for bank financing in the past seem to have easier access to credit. Focusing on the subset of firms actually needing additional bank financing, we also find that past credit restrictions significantly reduce their current demand, providing evidence of a significant discouragement effect. Supplementary Information The online version contains supplementary material available at 10.1007/s11187-021-00545-x. Plain English Summary Access to bank credit is a key driver of firms’ survival and growth, especially in bank-based financial systems. Building on detailed longitudinal survey data, this study investigates the determinants of access to bank financing by firms in the euro area, both in a static and dynamic setting. Most importantly, we account for the intertemporal nature of firms’ loan demand behaviour and banks’ credit granting choices and show that they are both characterized by significant persistence over time. We also find that repeated lending interactions enhance access to credit and that firms needing additional financing tend to be discouraged from applying after having experienced an actual credit restriction. Our findings shed light on the existence of substantial and persistent financial frictions in banking markets, which play a key role in amplifying adverse economic shocks, and call for policy and regulatory interventions to improve firms’ access to credit and limit systemic vulnerabilities. Supplementary Information The online version contains supplementary material available at 10.1007/s11187-021-00545-x.

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Green management, access to credit, and firms’ vulnerability to the COVID-19 crisis

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