A0808
Title: The impact of COVID-19 on SMEs default: The role of the network
Authors: Francesco Moscone - Brunel University London and Ca Foscari of Venice (United Kingdom) [presenting]
Monica Billio - University of Venice (Italy)
Joan Madia - University of Padua (Italy)
Elisa Tosetti - University of Padua (Italy)
Abstract: While various policy measures enhancing firms' access to liquidity mitigated immediate insolvency risks, a large number of companies failed. Financial variables measuring the liquidity and level of indebtedness of companies as well as macroeconomic factors are traditionally included as determinants of firms' default. Further, a large literature has pointed to the importance of interfirm links in determining a company's performance. An important type of network is the web of interlocking directorates of companies, having profound effects on companies regarding a variety of decisions, strategies and structures, and may prove to be critical during periods of high uncertainty, such as the one induced by the COVID-19 pandemic. We estimate a spatial Probit model for firms default as a function of firms characteristics, its pre-crisis financial situation, macroeconomic variables and spatial effects, where board membership is used to construct the network. We exploit a novel large data set on about 2,343,103 companies based in the United Kingdom followed over the years 2016 and 2022. Results suggest that the network plays an important role in determining firm performance and well-connected firms are more resilient during the pandemic relative to those that are isolated.
