Corporate financing needs: illiquidity, financial distress and firm productivity after COVID-19

Dr. Erik Canton, European Commission

To help repair the economic and social damage caused by the coronavirus pandemic, the EU intends to launch a recovery plan that will lead the way out of the crisis and lay the foundations for a modern and more sustainable Europe. Also Member States have introduced a variety of measures to support companies. Indeed, the unfolding of the COVID-19 pandemic has had an unprecedented impact on firms’ financial situation in the EU. The severe drop in demand due to the measures to control the pandemic has affected the liquidity position of most firms, and led to a significant deterioration of their solvency ratios. Using the Commission Summer forecast and the ORBIS database, we provide an estimate of the financing needs of European firms. These micro-based simulations underpin the overall size of the financing needs and their distribution in the population of firms as a function of firm characteristics. We find that more productive firms are less likely to become illiquid, but also that the bulk of the liquidity shortfall is attributable to firms in the top quartile of the productivity distribution. Providing support across the board to keep all illiquid firms afloat thus implies that most funds flow to productive companies. We also document that targeting support away from the most financially vulnerable firms has only a weak positive effect on aggregate productivity.

About the speaker

Erik Canton is deputy head of unit "Assessment and benchmarking of national reforms" at the Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission. The unit's main purpose is to identify main structural policies at EU and national level that can act as drivers of growth and jobs and to develop frameworks for assessing and benchmarking structural reforms in the Member States. Before joining DG ECFIN, Erik was Partner Competition Policy and Regulation at Ecorys in Rotterdam, consultant at the World Bank, and economist at the CPB Netherlands Bureau for Economic Policy Analysis. Erik holds a PhD from Tilburg University. His work focusses on economic growth, productivity, human capital, inclusive growth, public administration, and structural reforms.

Venue: via Zoom

Date: 10 December 2020

Time: 12:00 - 13:00  CET