A shot in the arm: stimulus packages and firm performance during Covid-19

BIS Working Papers  |  No 1014  | 
19 May 2022



The Covid-19 pandemic prompted governments to launch large economic policy packages around the world. How effective these packages have been?


To make a preliminary assessment, we use firm-level data for a large set of countries. We look at how firms were affected, based on their business sectors. This is because one yardstick of success is whether policy actions have given more of a lift to sectors that were more vulnerable to the pandemic. Firms are more vulnerable to social distancing or lockdown measures if they operate in sectors that rely more on face-to-face interactions when producing goods or providing services. Economic policy support would aim to help these worst-hit industries to mitigate spillovers and dislocation costs and to ensure that these firms have enough liquidity to avoid unnecessary bankruptcies.


The fiscal stimulus was robustly and positively associated with firm performance in pandemic-prone sectors. There is also some evidence that the monetary stimulus was associated with improved sales. Further, foreign exchange interventions were associated with an improved interest coverage ratio for the hardest-hit firms. Thus, this early assessment seems to suggest that policy interventions have bought time for the hardest-hit industries, by supporting sales and improving liquidity.


We use firm-level data to provide some early evidence on the effectiveness of COVID-19 economic policy packages. Our empirical strategy relies on the varying degree of vulnerability to the pandemic across industries. We find a robust association of fiscal stimulus with changes in firm performance indicators (as measured by sales-to-assets ratio, profit margin, interest coverage ratio as well as probability of default) in pandemic-prone sectors. We also observe marginal effects of monetary policy on the sales-to-assets ratio and of foreign exchange intervention on the interest coverage ratio in the hardest-hit firms. These results broadly survive a battery of exercises to address endogeneity. Additionally, we show that firms with a better financial position are more likely to take advantage of the stimulus packages to withstand the pandemic shock. Overall, these provide preliminary evidence suggesting that policy interventions have bought time for the hardest-hit industries, by supporting turnover and improving liquidity.

JEL classification: G01, G14, G28, E65

Keywords: Economic stimulus, pandemic-prone, COVID-19, policy effectiveness