Study on the Effectiveness of COVID-Aid on Firms

Abstract

The study investigates the impact of COVID-related State aid measures (COVID-aid) on firms’ performance in selected EU countries, distinguishing among different categories of (pre-crisis) firm size, economic sector, and type of financial instrument received. The current analysis covers three countries with available National State Aid Registries, namely Italy, Poland, and Spain, which enable precise identification of the beneficiaries of various forms of State aid. It focuses on turnover and probability of default as outcomes and considers companies that received only COVID-aid as beneficiaries, excluding all firms that received any other type of State aid. The methodology relies on a difference-in-differences approach combined with matching techniques. The impact of the aid is estimated as the difference in the outcome between the treated and control groups before and after the treatment. Given that firms may differ in several observed characteristics that might, in turn, affect their probability of receiving aid, Propensity Score Matching is also applied to account for this selection-based endogeneity. Overall, the results indicate that the COVID State aid on average led to statistically significant increases in turnover, therefore helping firms to remain active despite the slack caused by the COVID crisis. Yet, the aid slightly increased the probability of default.