Working paper

What Individual Data Tells us about the Covid-19 Impact on Corporate Liquidity in 2020

Published on 20 July 2021
Authors : Benjamin Bureau, Anne Duquerroy, Julien Giorgi, Mathias Lé, Suzanne Scott, Frédéric Vinas

Working Paper Series no. 824. Using rich granular data for over 645 000 French firms in 2020, this paper builds a micro-simulation model to assess the impact of the Covid-19 crisis on corporate liquidity. Going beyond the aggregate picture, we document that while net debt has been fairly stable at the macroeconomic level, individual heterogeneity is widespread. Significant dispersion in changes in net debt prevails both between and within industries, before as well as after public support. We show that the probability to experience a negative liquidity shock - as well as the intensity of this shock - are negatively correlated with the initial credit quality of the firm (based on Banque de France internal ratings). Our model also finds that public support dampens significantly the impact of Covid on the dispersion of liquidity shocks and brings back the distribution of liquidity shocks closer to its pre-crisis path but with fatter tails.

Image Share of companies with positive or nefative cash flow shock in 2020

This study uses a micro-simulation model to assess, company by company, the impact of the Covid-19 crisis on the financial situation of more than 645,000 non-financial companies (NFCs) in France in 2020. The objective of the study is to go beyond the macro-economic picture and to analyze the dispersion of the crisis impact between firms, with a particular focus on the effects of government support measures. To do so, we leverage a very rich set of individual data (monthly VAT returns in 2020, short-time work scheme in 2020, company financial statements in 2018, Banque de France internal ratings set right before the crisis, etc.).
The main indicator used in the analysis is the cash flow shock (before or after support measures). We estimate the cash flow deficit that the turnover shock creates for each company after taking into account investments, dividends and interest payments, but before any increase in debt. Excluding equity raise issuance or asset disposals, this "pre-financing" cash flow shock therefore corresponds to a change in net financial debt.

The study shows that the quasi-stability of net debt recorded at the aggregate level (+0.8% in 2020 compared to 2019 according to Banque de France’s monetary and financial statistics) conceals strong disparities at the individual level. In our simulations, firms with a negative cash flow shock see their total net debt increase by about €200bn, while those with a positive shock see their total net debt decrease by about the same amount.

The heterogeneity of cash flow shocks is particularly marked between sectors (before and after public support measures) but also within each sector. For example, even within the accommodation and food services sector, which is the one most affected by the crisis, nearly 20% of NFCs will experience a positive cash flow shock in 2020 after support. The occurrence and intensity of negative cash flow shocks at the end of 2020 are also correlated with the pre-Covid company's credit risk (proxied by the latest pre-shock Banque de France rating): the lowest rated firms not only suffer more frequently negative cash flow shocks, but also larger shocks (greater than one month of sales). The size of the firm, however, appears to be a secondary determinant of the occurrence of a cash flow deficit. 

Finally, our simulations show that government support measures reduce the dispersion of cash flow shocks and lead to a distribution that is more or less identical to that of a "normal" year (2018), except at the two ends of the distribution (see graph below). Thus, while in 2018 13% of companies have face a "strong" increase in their net debt (greater than one month of sales), this figure climbs to 21% in 2020. In contrast, while only 10% of companies experience a “strong” reduction in their net debt in 2018, nearly one in four companies are in this situation at the end of 2020. The distortion of the ends of the distribution is even more pronounced when we focus on the firms that were already vulnerable before the onset of the crisis.