Financing Firms in Hibernation during the COVID-19 Pandemic

The coronavirus (COVID-19) pandemic has halted economic activity worldwide, hurting firms and pushing them toward bankruptcy. This paper provides a unified framework to organize the policy debate related to firm financing during the downturn, cente...

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Main Authors: Didier, Tatiana, Huneeus, Federico, Larrain, Mauricio, Schmukler, Sergio L.
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2020
Subjects:
Online Access:http://documents.worldbank.org/curated/en/818801588952012929/Financing-Firms-in-Hibernation-during-the-COVID-19-Pandemic
http://hdl.handle.net/10986/33745
id okr-10986-33745
recordtype oai_dc
spelling okr-10986-337452022-09-20T00:11:59Z Financing Firms in Hibernation during the COVID-19 Pandemic Didier, Tatiana Huneeus, Federico Larrain, Mauricio Schmukler, Sergio L. CORONAVIRUS COVID-19 PANDEMIC RESPONSE SMALL AND MEDIUM SIZE ENTERPRISE CASH CRUSH CREDIT RISK FINANCIAL POLICY ECONOMIC CRISIS BANKRUPTCY ACCESS TO FINANCE The coronavirus (COVID-19) pandemic has halted economic activity worldwide, hurting firms and pushing them toward bankruptcy. This paper provides a unified framework to organize the policy debate related to firm financing during the downturn, centered along four main points. First, the economic crisis triggered by the spread of the virus is radically different from past crises, with important consequences for optimal policy responses. Second, to avoid inefficient bankruptcies and long-term detrimental effects, it is important to preserve firms' relationships with key stakeholders, like workers, suppliers, customers, and creditors. Third, firms can benefit from "hibernating," using the minimum bare cash necessary to withstand the pandemic, while using credit to remain alive until the crisis subdues. Fourth, the existing legal and regulatory infrastructure is ill-equipped to deal with an exogenous systemic shock such as this pandemic. Financial sector policies can help increase the provision of credit, while posing difficult choices and trade-offs. 2020-05-14T14:26:45Z 2020-05-14T14:26:45Z 2020-05 Working Paper http://documents.worldbank.org/curated/en/818801588952012929/Financing-Firms-in-Hibernation-during-the-COVID-19-Pandemic http://hdl.handle.net/10986/33745 English Policy Research Working Paper;No. 9236 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic CORONAVIRUS
COVID-19
PANDEMIC RESPONSE
SMALL AND MEDIUM SIZE ENTERPRISE
CASH CRUSH
CREDIT RISK
FINANCIAL POLICY
ECONOMIC CRISIS
BANKRUPTCY
ACCESS TO FINANCE
spellingShingle CORONAVIRUS
COVID-19
PANDEMIC RESPONSE
SMALL AND MEDIUM SIZE ENTERPRISE
CASH CRUSH
CREDIT RISK
FINANCIAL POLICY
ECONOMIC CRISIS
BANKRUPTCY
ACCESS TO FINANCE
Didier, Tatiana
Huneeus, Federico
Larrain, Mauricio
Schmukler, Sergio L.
Financing Firms in Hibernation during the COVID-19 Pandemic
relation Policy Research Working Paper;No. 9236
description The coronavirus (COVID-19) pandemic has halted economic activity worldwide, hurting firms and pushing them toward bankruptcy. This paper provides a unified framework to organize the policy debate related to firm financing during the downturn, centered along four main points. First, the economic crisis triggered by the spread of the virus is radically different from past crises, with important consequences for optimal policy responses. Second, to avoid inefficient bankruptcies and long-term detrimental effects, it is important to preserve firms' relationships with key stakeholders, like workers, suppliers, customers, and creditors. Third, firms can benefit from "hibernating," using the minimum bare cash necessary to withstand the pandemic, while using credit to remain alive until the crisis subdues. Fourth, the existing legal and regulatory infrastructure is ill-equipped to deal with an exogenous systemic shock such as this pandemic. Financial sector policies can help increase the provision of credit, while posing difficult choices and trade-offs.
format Working Paper
author Didier, Tatiana
Huneeus, Federico
Larrain, Mauricio
Schmukler, Sergio L.
author_facet Didier, Tatiana
Huneeus, Federico
Larrain, Mauricio
Schmukler, Sergio L.
author_sort Didier, Tatiana
title Financing Firms in Hibernation during the COVID-19 Pandemic
title_short Financing Firms in Hibernation during the COVID-19 Pandemic
title_full Financing Firms in Hibernation during the COVID-19 Pandemic
title_fullStr Financing Firms in Hibernation during the COVID-19 Pandemic
title_full_unstemmed Financing Firms in Hibernation during the COVID-19 Pandemic
title_sort financing firms in hibernation during the covid-19 pandemic
publisher World Bank, Washington, DC
publishDate 2020
url http://documents.worldbank.org/curated/en/818801588952012929/Financing-Firms-in-Hibernation-during-the-COVID-19-Pandemic
http://hdl.handle.net/10986/33745
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