Causal Evidence on Firms' Investment Expectations and Revisions in Response to the Global Pandemic
Abstract
This paper studies firms' investment expectations and their revisions in response to the COVID-19 pandemic outbreak. Combining a survey of Swiss firms with a quasi-experimental research design finds that the pandemic caused firms to reduce their 2020 investment plans by over one-eight. The pandemic reinforced pre-crisis constraints in that companies facing poor economic conditions or a lack of financial resources cut their plans more than others. Although realization certainty before the crisis did not predict revisions, increased uncertainty during the crisis depressed firms' expected investments through real options effects. Government-guaranteed loans helped preserve plans to expand production capacity, and the forward-guiding easing of containment measures reduced uncertainty, resulting in smaller revisions overall.
