Government policies and firm performance in the COVID-19 pandemic era: a sectoral analysis

The effect of the COVID-19 pandemic has been severely detrimental to most firms. Preliminary estimates from Italy, which experienced the worst devastation from the virus during the early days of the pandemic, predicted that the country could lose at least $8.3 bn in the service and manufacturing sectors due to the coronavirus pandemic. Although there has been a series of ongoing government policies to mitigate the economic effect of the pandemic, we do not know to what extent these policies have been effective. Using two-period panel data (before and during the pandemic) on 419 Italian firms, this study examines the impact of government policies on firms using first difference estimation. The results show that firms that received a government grant in relation to the COVID-19 pandemic saw on average an 11% increase in sales revenue by the end of June 2020 compared to those yet to receive grants. A sectoral decomposition of the analysis indicates government policy to be effective in the services sector if performance is measured by sales revenue. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s43546-021-00170-6.