[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/eti/dpaper/20065.html
   My bibliography  Save this paper

Firm Exit during the COVID-19 Pandemic: Evidence from Japan

Author

Listed:
  • MIYAKAWA Daisuke
  • OIKAWA Koki
  • UEDA Kozo
Abstract
Firms have exited the market since the start of the COVID-19 pandemic. To evaluate the number of firms exiting the market and their exit rate, we construct a simple model, in which firms optimally choose stopping time for their exit. We estimate the model using firm-level data on firm exits before the pandemic. Subsequently, using recent survey data on firm sales growth, we simulate potential firm exits during the pandemic under the condition that the institutional background, represented by activities such as bankruptcy procedures and government rescue plans, did not change the exit option value. Our main findings are as follows. First, we find sizable heterogeneity with respect to the number and rate of firm exits across industries and regions. Second, in aggregate, the pandemic potentially increased firm exits by around 20% compared to the previous year under the assumption that the recent reduction in firm sales is temporary and, thus, partially incorporated into firms' expectations for future trend sales growth. In two extreme cases in which the recent sales reduction has a full or no impact on firms' expectations for future sales, firm exits increased by 110% and 10%, respectively. Third, these increases are mainly due to the decrease in the expected sales growth rate, rather than the increase in uncertainty. Finally, we quantify the hypothetical amount of government subsidies needed to prevent excess increases in potential firm exits, which is around 10-3 of Japan's GDP.

Suggested Citation

  • MIYAKAWA Daisuke & OIKAWA Koki & UEDA Kozo, 2020. "Firm Exit during the COVID-19 Pandemic: Evidence from Japan," Discussion papers 20065, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:20065
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/20e065.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vadim Elenev & Tim Landvoigt & Stijn Van Nieuwerburgh, 2022. "Can the covid bailouts save the economy?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(110), pages 277-330.
    2. Scott R. Baker & Nicholas Bloom & Steven J. Davis & Stephen J. Terry, 2020. "COVID-Induced Economic Uncertainty," NBER Working Papers 26983, National Bureau of Economic Research, Inc.
    3. Alexander W. Bartik & Marianne Bertrand & Zoë B. Cullen & Edward L. Glaeser & Michael Luca & Christopher T. Stanton, 2020. "How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey," NBER Working Papers 26989, National Bureau of Economic Research, Inc.
    4. Bosio, Erica & Djankov, Simeon & Jolevski, Filip & Ramalho, Rita, 2020. "Survival of firms during economic crisis," LSE Research Online Documents on Economics 118912, London School of Economics and Political Science, LSE Library.
    5. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    6. King, Gary & Zeng, Langche, 2001. "Logistic Regression in Rare Events Data," Political Analysis, Cambridge University Press, vol. 9(2), pages 137-163, January.
    7. Gee Hee HONG & ITO Arata & SAITO Yukiko & Thi-Ngoc Anh NGUYEN, 2020. "Structural Changes in Japanese SMEs: Business Dynamism in Aging Society and Inter-Firm Transaction Network," Policy Discussion Papers 20003, Research Institute of Economy, Trade and Industry (RIETI).
    8. Kawaguchi, Kohei & Kodama, Naomi & Tanaka, Mari, 2021. "Small business under the COVID-19 crisis: Expected short- and medium-run effects of anti-contagion and economic policies," Journal of the Japanese and International Economies, Elsevier, vol. 61(C).
    9. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    10. Tsuruta, Daisuke, 2021. "Lack of successors, firm default, and the performance of small businesses," Japan and the World Economy, Elsevier, vol. 57(C).
    11. Peng XU, 2019. "Exit of Small Businesses: Differentiating between Insolvency, Voluntary Closures and M&A," Discussion papers 19051, Research Institute of Economy, Trade and Industry (RIETI).
    12. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1103-1144.
    13. Golombek, Rolf & Raknerud, Arvid, 2018. "Exit dynamics of start-up firms: Structural estimation using indirect inference," Journal of Econometrics, Elsevier, vol. 205(1), pages 204-225.
    14. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2020. "How will COVID-19 Affect Financial Assets, Delinquency and Bankruptcy?," On the Economy 87886, Federal Reserve Bank of St. Louis.
    15. Manski, Charles F & Lerman, Steven R, 1977. "The Estimation of Choice Probabilities from Choice Based Samples," Econometrica, Econometric Society, vol. 45(8), pages 1977-1988, November.
    16. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
    17. H. Dharma Kwon, 2010. "Invest or Exit? Optimal Decisions in the Face of a Declining Profit Stream," Operations Research, INFORMS, vol. 58(3), pages 638-649, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shahin, Ahmad E, 2021. "Growing During a Global Crisis," MPRA Paper 117829, University Library of Munich, Germany.
    2. Leonardo Bonilla-Mejía & Luz A. Florez & Didier Hermida & Francisco Lasso & Leonardo Fabio Morales & Juan Jose Ospina & José Pulido, 2023. "Is the COVID-19 Pandemic Fast-Tracking Automation in Developing Countries? Evidence from Colombia," Journal of Human Capital, University of Chicago Press, vol. 17(4), pages 593-616.
    3. Mike Tsionas & Mikael A. Martins & Almas Heshmati, 2023. "Effects of the vaccination and public support on covid-19 cases and number of deaths in Sweden," Operational Research, Springer, vol. 23(3), pages 1-28, September.
    4. Masayuki Morikawa, 2023. "Productivity and wages of firms using COVID‐19‐related support policies," Social Science Quarterly, Southwestern Social Science Association, vol. 104(3), pages 202-213, May.
    5. Funashima, Yoshito & Hiraga, Kazuki, 2023. "Did the Japanese government’s travel subsidy increase the number of hotel guests and infection during the COVID-19 pandemic?," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 1005-1025.
    6. Cheng Chen & Tatsuro Senga & Hongyong Zhang, 2021. "Measuring business-level expectations and uncertainty: survey evidence and the COVID-19 pandemic," The Japanese Economic Review, Springer, vol. 72(3), pages 509-532, July.
    7. Eleonora Cutrini & Federico Ninivaggi, 2024. "Pandemic crisis and firm survival: evidence from the Italian manufacturing industry," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 51(2), pages 265-297, June.
    8. Takeda, Asami & Truong, Hoa T. & Sonobe, Tetsushi, 2022. "The impacts of the COVID-19 pandemic on micro, small, and medium enterprises in Asia and their digitalization responses," Journal of Asian Economics, Elsevier, vol. 82(C).
    9. Satoshi Tanaka, 2022. "Economic Impacts of SARS/MERS/COVID‐19 in Asian Countries," Asian Economic Policy Review, Japan Center for Economic Research, vol. 17(1), pages 41-61, January.
    10. Honda, Tomohito & Hosono, Kaoru & Miyakawa, Daisuke & Ono, Arito & Uesugi, Iichiro, 2023. "Determinants and effects of the use of COVID-19 business support programs in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    11. Tomoyuki Yagi & Kakuho Furukawa & Jouchi Nakajima, 2022. "Productivity Trends in Japan - Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era -," Bank of Japan Working Paper Series 22-E-10, Bank of Japan.
    12. Takahiro Hattori & Motoki Katano, 2020. "Do fiscal policy news shocks affect JGB yield? Evidence from COVID-19," Discussion papers ron334, Policy Research Institute, Ministry of Finance Japan.
    13. Kikuchi, Shinnosuke & Kitao, Sagiri & Mikoshiba, Minamo, 2021. "Who suffers from the COVID-19 shocks? Labor market heterogeneity and welfare consequences in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 59(C).
    14. Daiji Kawaguchi & Sagiri Kitao & Manabu Nose, 2022. "The impact of COVID-19 on Japanese firms: mobility and resilience via remote work," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1419-1449, December.
    15. Javier Espinosa-Brito & Carlos Yevenes-Ortega & Gonzalo Franetovic-Guzman & Diana Ochoa-Diaz, 2022. "Impact of an Employment Policy on Companies' Expectations Fulfilment," Papers 2204.05500, arXiv.org.
    16. Hiroyuki Okamuro & Yasushi Hara & Yunosuke Iwaki, 2022. "Impact of Consumer Awareness and Behavior on Business Exits in the Hospitality, Tourism, Entertainment, and Culture Industries under the COVID-19 Pandemic," Administrative Sciences, MDPI, vol. 12(4), pages 1-19, November.
    17. Silvia Muzi & Filip Jolevski & Kohei Ueda & Domenico Viganola, 2023. "Productivity and firm exit during the COVID-19 crisis: cross-country evidence," Small Business Economics, Springer, vol. 60(4), pages 1719-1760, April.
    18. Morita, Hiroshi & Ono, Taiki, 2022. "COVID-19 Uncertainty Index in Japan: Newspaper-Based Measures and Economic Activities," Discussion paper series HIAS-E-116, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    19. Stef, Nicolae & Bissieux, Jean-Joachim, 2022. "Resolution of corporate insolvency during COVID-19 pandemic. Evidence from France," International Review of Law and Economics, Elsevier, vol. 70(C).
    20. ABDELHAMID, Mohamed Ben & BELLALAH, Makram, 2023. "Investigating The Optimal Exit Timing And Leverage During The Covid-19 Crisis," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 27(1), pages 18-38, March.
    21. Morita, Hiroshi & Ono, Taiki, 2024. "COVID-19 uncertainty index in Japan: Newspaper-based measures and economic activities," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 390-403.
    22. Shinnosuke Kikuchi & Sagiri Kitao & Minamo Mikoshiba, 2020. "Who Suffers from the COVID-19 Shocks? Labor Market Heterogeneity and Welfare Consequences in Japan (Forthcoming in the Journal of the Japanese and the International Economies)," CARF F-Series CARF-F-490, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    23. Gee Hee HONG & ITO Arata & NGUYEN Thi Ngoc Anh & SAITO Yukiko, 2022. "Did the COVID-19 Pandemic Create More Zombie Firms in Japan?," Discussion papers 22072, Research Institute of Economy, Trade and Industry (RIETI).
    24. Xia, Yanchun & Qiao, Zhilin & Xie, Guanghua, 2022. "Corporate resilience to the COVID-19 pandemic: The role of digital finance," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. MIYAKAWA Daisuke & OIKAWA Koki & UEDA Kozo, 2022. "Misallocation under the Shadow of Death," Discussion papers 22014, Research Institute of Economy, Trade and Industry (RIETI).
    2. Morikawa, Masayuki, 2021. "Productivity of firms using relief policies during the COVID-19 crisis," Economics Letters, Elsevier, vol. 203(C).
    3. repec:ctc:sdimse:dime21_01 is not listed on IDEAS
    4. Rebecca Riley & Chiara Rosazza Bondibene & Garry Young, 2013. "Productivity Dynamics in the Great Stagnation: Evidence from British businesses," Discussion Papers 1407, Centre for Macroeconomics (CFM), revised Apr 2014.
    5. Riley, Rebecca & Rosazza-Bondibene, Chiara & Young, Garry, 2015. "The UK productivity puzzle 2008-13: evidence from British businesses," Bank of England working papers 531, Bank of England.
    6. Dincer, Nergiz & Tekin-Koru, Ayca, 2019. "An Anatomy of Productivity in Turkey in the AKP Era through a Political Economy Lens," MPRA Paper 96844, University Library of Munich, Germany.
    7. MOTOHASHI Kazuyuki, 2021. "Productivity of Firms Using Relief Policies During the COVID-19 Crisis," Policy Discussion Papers 21006, Research Institute of Economy, Trade and Industry (RIETI).
    8. Luna, Ivette & Hiratuka, Celio & Haddad Netto, Elias Youssef, 2016. "Survival of the fittest or does size matter: What are the main drivers of Productivity in Brazil?," MPRA Paper 78208, University Library of Munich, Germany, revised 2016.
    9. Masayuki Morikawa, 2023. "Productivity and wages of firms using COVID‐19‐related support policies," Social Science Quarterly, Southwestern Social Science Association, vol. 104(3), pages 202-213, May.
    10. Heyman, Fredrik & Norbäck, Pehr-Johan & Persson, Lars, 2015. "The Turnaround of Swedish Industry: Reforms, Firm Diversity and Job and Productivity Dynamics," Working Paper Series 1079, Research Institute of Industrial Economics.
    11. Guerini, Mattia & Nesta, Lionel & Ragot, Xavier & Schiavo, Stefano, 2024. "Zombification of the economy? Assessing the effectiveness of French government support during COVID-19 lockdown," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 263-280.
    12. Charles A.E. Goodhart & Dimitrios P. Tsomocos & Xuan Wang, 2023. "Support for small businesses amid COVID‐19," Economica, London School of Economics and Political Science, vol. 90(358), pages 612-652, April.
    13. Daan Freeman & Leon Bettendorf & Gerrit Hugo van Heuvelen & Gerdien Meijerink, 2024. "Business Dynamics and Productivity Growth in the Netherlands," CESifo Working Paper Series 11071, CESifo.
    14. Iain M. Cockburn & Megan J. MacGarvie, 2011. "Entry and Patenting in the Software Industry," Management Science, INFORMS, vol. 57(5), pages 915-933, May.
    15. Viktoria Kocsis & Victoria Shestalova & Henry van der Wiel & Nick Zubanov & Ruslan Lukach & Bert Minne, 2009. "Relation entry, exit and productivity: an overview of recent theoretical and empirical literature," CPB Document 180.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Doraszelski, Ulrich & Jaumandreu, Jordi, 2006. "R&D and productivity: Estimating production functions when productivity is endogenous," MPRA Paper 1246, University Library of Munich, Germany.
    17. Trent Geisler & Herman Ray & Ying Xie, 2023. "Finding the Proverbial Needle: Improving Minority Class Identification Under Extreme Class Imbalance," Journal of Classification, Springer;The Classification Society, vol. 40(1), pages 192-212, April.
    18. Daisuke Miyakawa & Koki Oikawa & Kozo Ueda, 2022. "Reallocation Effects Of Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 947-975, May.
    19. Lahiri, Kajal & Yang, Liu, 2013. "Forecasting Binary Outcomes," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1025-1106, Elsevier.
    20. Adian,Ikmal & Doumbia,Djeneba & Gregory,Neil & Ragoussis,Alexandros & Reddy,Aarti & Timmis,Jonathan David, 2020. "Small and Medium Enterprises in the Pandemic : Impact, Responses and the Role of Development Finance," Policy Research Working Paper Series 9414, The World Bank.
    21. Sarlin, Peter & von Schweinitz, Gregor, 2021. "Optimizing Policymakers’ Loss Functions In Crisis Prediction: Before, Within Or After?," Macroeconomic Dynamics, Cambridge University Press, vol. 25(1), pages 100-123, January.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G3 - Financial Economics - - Corporate Finance and Governance
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:20065. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: TANIMOTO, Toko (email available below). General contact details of provider: https://edirc.repec.org/data/rietijp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.