small versus medium and larger firms.

_Six_ , as the COVID-19 pandemic evolved, governments have expanded the support for businesses. Interestingly, the share of supported firms increased the most in countries that suffered the largest severe drop in mobility. Countries in the low and lower middle income group, as well as those with higher pre-pandemic public debt have been more constrained in their ability to offer support to firms.

Our work makes several contributions to the burgeoning literature studying the impact of the pandemic on firms. _First_ , while the existing studies examine the direct disruptive effects of the pandemic primarily in advanced countries (e.g., Bloom et al., 2021; OECD, 2021; Bartik et al., 2020), our work provides extensive evidence for a large sample of firms in developing countries. _Second_ , barring a few exceptions, most evidence so far has been focused on a cross-section of firms (e.g., Borino et al., 2021; Apedo-Amah et al., 2020). Our work provides a detailed account of the recovery patterns across a range of firm outcomes using two rounds of BPS data with nearly 25,000 panel firms, filling a critical knowledge gap on the recovery process. _Three_ , our work provides a timely assessment on the heterogeneity of recovery by firm and country attributes and the gaps in adjustment response among developing countries. This could potentially help inform the type of firm support interventions. _Four_ , jobs dynamics are fundamental in the context of an analysis of the recovery as crises tend to have a long-lasting impact on employment.<sup>4</sup> To the best of our knowledge, our work is the first to provide firm-level evidence on the asymmetry of employment recovery.

# **2. Related Literature**

Our study is linked to the strand of the literature aiming to understand the impact of COVID-19 on the performance and economic decisions of incumbent firms over time. The assessment of the impact of the pandemic on firm performance, particularly SMEs, has been relying heavily on surveys.<sup>5</sup> A rapidly growing literature is showing a damaging economic impact of COVID-19 on a cross-section of incumbent firms (Bartik et al., 2020; Beck, 2020; Fairlie and Fossen, 2021; Gourinchas et al., 2021; Papanikolaou and Schmidt, 2020; Buffington et al., 2020). Most of these studies use one wave of data and are focused on the short-term impact of COVID-19. Overall, they tend to conclude that the pandemic has a large negative economic impact on performance of firms, with substantial heterogeneity across countries and groups of firms and workers, within countries.

A fewer studies follow a panel of firms in the same country to chart out the pattern of recovery. For instance, using the opt-in panel of around 2,500 small businesses from the United States, Bloom et al. (2021) report a significant negative impact on sales that peaked in mid-2020, with an average loss of 29% (Bloom et al., 2021). These impacts also appear to be persistent such that the recovery in quarter 3 of 2020 was only partial, if any. In fact, firms reporting the largest sales drops during the

> 4See, for instance, Fernald et al. (2017); von Wachter (2021); Brynjolfsson et al. (2020); Merkl and Weber (2021); Yagan (2019).

> 5There are some exceptions, such as Chetty et al. (2020), which describes an impressive dataset built with private sector information, providing daily statistics on consumer spending, business revenues, employment rates, and other key indicators disaggregated; and (Hassan et al., 2020), which uses text data from earnings reports.

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