The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy

We forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown, using a representative sample of 80,972 Italian firms. A 3-month lockdown entails an aggre- gate yearly drop in profits of about 10% of GDP and results in financial distress for 17% of the sample firms, employing 8.8% of the sample employees. Distress is more frequent for small and medium-sized enterprises, for firms with high pre-COVID-19 leverage, and those belonging to the Manufacturing and Wholesale Trading sectors. Listed companies are less likely to enter distress, while there is no clear correlation between distress rates and family firm ownership.