Corporate Policies in Crisis Times: Evidence from the COVID-19 Pandemic

Areas: Entrepreneurial finance and support mechanisms

Funding level: National

Funding agency: Italian Ministry of University and Research

Abstract: 

The project studies the impact of the Covid-19 pandemic on corporate policies. Economic activity was nearly halted by lockdowns, with severe consequences for firms’ financial health. The implications of this crisis are investigated along two dimensions: the

market for corporate control and government-backed financing programs.  

The first line of research focuses on the relationship between Covid-19 and M&A from different angles. First, the project investigates whether acquisitions served as a rescuing mechanism for firms that became financially vulnerable due to the crisis. Second, given

the dash for cash that occurred since the beginning of the pandemic, the project examines whether part of this capital is used by firms to exploit investment opportunities in the form of acquisitions. Third, the pandemic has shown that the consequences of the

lockdown would have been magnified in the absence of digital technologies. The project analyzes whether mergers and acquisitions have been utilized by companies to accelerate the acquisition of technology and knowledge and how investors have reacted to the deals. Finally, deals completed shortly before the outbreak may have faced severe difficulties in post-M&A integration due to lockdowns. The project aims to address this issue as well.

 The second line of research examines the role played by state-backed loan guarantees on firms’ financing policies. The Italian government put forward extraordinary policy measures to support firms’ financial health, including a program of loan guarantees.

Since financial flexibility is extremely valuable to firms, especially during crises, the project looks at public and private firms that had access to state-backed guaranteed loans to understand whether they benefited from improved financial flexibility. State guarantees come at the cost of curbing firms’ distribution policies. Also, the project investigates whether state-guaranteed loans have affected

firms’ ability to repay such debt is expected to increase following the pandemic. 

The research team is composed of two units: Università Cattolica in Milan (lead unit), and University of Bologna. The project’s time horizon is two years. Besides contributing to the academic debate, the project can achieve relevant results in terms of social and

economic impact. In particular, the project can help to shed light on firms’ vulnerability to shocks, providing evidence on how firms change their investment policies and how they adapt their capital structure and distribution policies under unforeseen shocks like Covid-19. Also, the project can help policymakers and regulators to design the proper incentives and mechanisms for firms to maintain their economic activity and accelerate post-crisis recovery.

DiSA role: Partner - Local Unit

DiSA Team Leader: Emanuele Bajo

Disa Team members: Marco Bigelli, Massimiliano Barbi

Project Coordinator: Università Cattolica del Sacro Cuore - Milano

Start date: 28/09/2023 - End date: 27/09/2025

Total project cost: 302.202 euro

Funded by European Union - Next Generation EU