Working from home: small business performance and the COVID-19 pandemic

ABSTRACT: During the COVID-19 pandemic, many firms began operating in a working-from-home environment (WFH). This study focuses on the relationship between WFH and small business performance during the pandemic. We built a theoretical framework based on firm profit maximization, compiled an up-to-date (March through November) real-time daily and weekly multifaceted data set, and empirically estimated fixed-effect panel data, fractional logit, and multilevel mixed effects models to test our hypotheses. We find that in states with higher WFH rates, small businesses performed better overall with industry variations, controlling for the local pandemic, economic, demographic, and policy factors. We also find that WFH rates increased even after stay-at-home orders (SHOs) were rescinded. With the ready technology and practice of WFH in the pandemic, our robust empirics confirm our theory and hypotheses and demonstrate WFH as a potential force that may expedite “creative destruction” instance and permanently impact industrial structure and peoples’ work lives. PLAIN ENGLISH SUMMARY: The Rise of Working from Home (WFH) as a Silver Lining and “Creative Destruction” in the Pandemic: WFH Helps Small Businesses Perform Better with Industry Variations and Continues to Shine after Stay-at-Home Orders Ended. This study focuses on the role of working from home (WFH) for small business performance during the COVID-19 pandemic. We built a theoretical framework based on firm profit maximization and identified WFH as a rational business choice. We then compiled a real-time multifaceted data set, estimated panel fixed-effect, fractional logit, and multilevel mixed effects models, and find that (1) small businesses in states with higher WFH rates performed better with industry variations, controlling for local pandemic and socioeconomic factors; and (2) WFH rates increased after stay-at-home orders were rescinded. Our study demonstrates WFH as a potential “creative destruction” force that may expedite our technologically ready WFH adoption and permanently impact industrial structure and peoples’ work lives.