Government Support and Firm Performance During COVID-19

This paper assesses the medium-run effects of government support to firms during the COVID-19 crisis and whether the effectiveness of this support varied with its timing. Using data from three rounds of the World Bank’s Enterprise Surveys COVID-19 Follow-up Surveys carried out between May 2020 and August 2022, it relates government support in Round 1 and 2 with firm performance in Round 3. Our results add to the existing literature on government support during the COVID-19 shock and previous crises, which has provided little evidence on how the effect of this support varies with its timing. Controlling for a host of background characteristics, firms that received support in Round 1 performed better in terms of Round 3 sales, but only if they did not have continued support. Firms that also received support in Round 2 had similar Round 3 sales to those who received no support. Firms that received government support only in Round 2 experienced no boost in Round 3 performance. The findings suggest that government support should be provided promptly, but it should also be phased out quickly.