Public support and firm zombification during Covid-19: an empirical analysis on the effect of public interventions on bankruptcy dynamics in Italy

The economic crisis following the Covid-19 pandemic impacted productivity and output performances of most countries, putting at risk the survival of many companies. Policy choices were implemented to “hibernate” the economy and avoid disruptive effects of firms bankruptcy on employment, consumption and supply chain dynamics. We investigate whether governments did too much, fueling the risk of firm zombification, or too little, letting productive companies die. To examine this issue we try to understand if public supports and policy choices distorted the usual determinants of bankruptcies. Referring to existing studies on the matter conducted using French data, we develop a logit model for Italy on a sample of 262.509 Italian firms of the retail sector during the period 2014-2020. Using data of the Household budget survey (HBS), we measure the Covid-19 shock on consumption with the variation in the average monthly payments by Italian families between 2019 and 2020, using the ECOICOP classification. Results show that the determinants of bankruptcies work similarly in 2019 and in 2020, without relevant distortion in the bankruptcy dynamics. Considering our Covid Shock measure in the model, we find that policy support partially absorbed the shock given its minor relevance in the prediction of firm bankruptcy.