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This paper estimates the drop in profits and the equity shortfall triggered by the COVID-19 shock and the subsequent lockdown, using a representative sample of 80,972 Italian firms. We find that a 3-month lockdown entails an aggregate yearly drop in profits of €170 billion, with an implied equity erosion of €117 billion for the whole sample, and €31 billion for firms that became distressed, i.e., ended up with negative book value after the shock. As a consequence of these losses, about 17% of the sample firms, whose employees account for 8.8% of total employment in the sample (about 800 thousand employees), become distressed. Small and medium-sized enterprises (SMEs) are affected disproportionately, with 18.1% of small firms, and 14.3% of medium-sized ones becoming distressed, against 6.4% of large firms. The equity shortfall and the extent of distress are concentrated in the Manufacturing and Wholesale Trading sectors and in the North of Italy. Since many firms predicted to become distressed due to the shock had fragile balance sheets even prior to the COVID-19 shock, restoring their equity to their pre-crisis levels may not suffice to ensure their long-term solvency.

This paper studies how access to bank lending differed between family and non-family firms in the 2007-2009 financial crisis. The theoretical prediction is that family block-holders’ incentive structure results in lower agency conflict in the borrower-lender relationship. Using highly detailed data on bank-firm relations, we exploit the reduction in bank lending in Italy following the crisis in October 2008. We find statistically and economically significant evidence that the contraction in credit for family firms was smaller than that for non-family firms. Results are robust to ex-ante observable differences between the two types of firms and to time-varying bank fixed effects. We further show that the difference in the amount of credit granted to family and non-family firms is related to an increased role for soft information in Italian banks’ operations, following the Lehman Brothers’ failure. Finally, by identifying a match between those banks and family firms, we can control for time-varying unobserved heterogeneity among the firms and validate the hypothesis that our results are supply driven.

This paper quantifies how the welfare costs of the U.S. Great Recession are distributed across borrowing and saving U.S. households. For this purpose, we use a calibrated dynamic general equilibrium model of housing and household debt with shocks to aggregate income and shocks to the financial intermediation sector. The model matches the boom-bust cycle in house prices, the dynamics of household mortgage debt, and the increase in wealth inequality observed in the U.S. between 2001-2013. We find larger welfare costs of the Great Recession for borrowers than for savers. Borrowers experience a larger drop in consumption than savers who relatively benefit from a redistribution of housing wealth during the recession. We show that the size of this redistribution mechanism would have been significantly lower if (i) mortgage spreads would have remained at the low pre-crisis levels during the recession or if (ii) aggregate leverage would have remained at pre-2001 levels.