Abstract
We analyze the potential role of equity injections in addressing solvency risks among small and medium-sized enterprises (SMEs) after the COVID-19 crisis. Building on firm-level balance sheet projections for a sample of European economies, we simulate selected policy interventions and find that equity injections are quite effective at dampening the rise in insolvencies. Cost effectiveness requires careful targeting, however; under an illustrative scenario, leaving aside any costs arising from imperfect information and implementation, the cost of a program targeting only those SMEs worth saving is just a tenth of the cost of an untargeted approach directed to all insolvent firms. Overall, our paper provides a case for governments to rely more on targeted equity injections in responding to major shocks that trigger mass solvency risks.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
