# **1. Introduction**

Governments around the world provided unprecedented support to firms when the COVID-19 pandemic started. For example, the World Bank’s SME-Support Measure Dashboard tracked 1,500 government measures to support small and medium-size enterprises (SMEs) in 132 countries.<sup>1</sup> According to policy makers, these initial support measures aimed to prevent mass insolvency of viable firms and related knock-on effects for the financial sector, to preserve jobs and firm-specific intangible capital, and to reduce the friction costs of firms temporarily exiting the market (World Bank 2021).

Evidence from several countries suggests that government support measures were successful in helping firms weather the crisis and preserving jobs in the short run (see Chen et al. 2022, on China; GuerreroAmezaga et al. 2022, on Latin America, and Turkson et al. 2021, on Italy), although at a high cost (Autor et al. 2022, on the US). However, longer-run effects of COVID-19 support to firms are uncertain (Staples and Krumel 2023), in part since these measures may simply have delayed insolvency for some firms (Dörr, Licht, and Murmann 2022).

We contribute to the literature by assessing the medium-run effects of government support to firms during the COVID-19 crisis. We use data from three rounds of the World Bank’s Enterprise Surveys (ES) COVID-19 Follow-up Surveys, allowing us to look at firm performance in mid-2021, over a year after support measures were first enacted.

Another contribution of our paper is that we test whether the effectiveness of government support varied with its timing. The data allow us to examine support received at the onset of the crisis (during the first half of 2020, as reported in Round 1 of the ES COVID-19 Follow-up Surveys), as well as support received later (during the second half of 2020 or early 2021, as reported in Round 2 of the surveys). While initial support may be effective, if it continues over an extended period, it can also distort markets and firms’ incentives (Pop and Amador 2020; World Bank 2021). Thus, the effects of initial support may differ from the effects of subsequent support.

We analyze data for 15 emerging markets and developing countries in Europe and Central Asia (ECA), to focus on a homogeneous environment. First, we document that 42 percent of firms received government support by Round 1 of the survey, and 23 percent received support between Rounds 1 and 2, giving a cumulative 50 percent of firms receiving support. The support measure reaching by far the largest share of firms was wage subsidies, with 8 out of 10 firms that received any type of support receiving such subsides. The second most wide-reaching measure was cash transfers (less than 4 out of 10 firms), followed by fiscal relief, payment deferrals, and new credit (less than 2 out of 10 firms each).

Then, we ask how receiving government support by Round 1 and Round 2 of the ES COVID-19 Follow-up Surveys affected firm performance in Round 3 of the survey. Here, we examine the relationship between Round 3 performance and support in Rounds 1 and 2 to minimize reverse causality. To reduce omitted variable bias, we control for a host of firm characteristics that may have affected both the probability of receiving support and firm performance.

We find that firms that received government support in Round 1 performed better in terms of Round 3 sales compared to firms that did not receive any support, but only if they did not have continued 1 https://dataviz.worldbank.org/authoring/SME-COVID19/Overview 2