The Impact of COVID-19 on the Landscape of Young Firms with a Public Sector Orientation

Abstract

Emerging research on the impact of COVID-19 – a sudden, extreme global economic and societal shock – suggests that young businesses are especially vulnerable to the pandemic due to their small size, resource constraints, and limited experience. We leverage comprehensive longitudinal databases tracking over 200,000 young businesses with a revealed preference for interacting with the U.S. federal government. We define this population of young firms as having a public sector orientation. Our analyses of the COVID-19 outbreak’s impact as an exogenous shock on this population unpack three main discoveries. First, we discover sizable shifts in overall trends in firm features and formal commercial relationships with the federal government. Second, we observe a greater tendency for this population of firms to provide services and support to the federal government rather than seek services and support from the government. Third, we discover firms that successfully engaged with the government captured additional financial benefits during the pandemic, measured by the amount and number of federal resource inflows. Thus, amid the COVID-19 crisis, we observe a silver lining of strategic opportunity amongst young firms with a distinct feature – having a public sector orientation. We discuss the theoretical, managerial, and policy implications of our empirical findings.