Zana Beqiri Luma, Firm Coping Strategies during the COVID-19 Pandemic: Evidence from Western Balkan Countries (2022)

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Article by Zana Beqiri Luma of Mother Teresa University – Skopje, Firm Coping Strategies during the COVID-19 Pandemic: Evidence from Western Balkan Countries, European Journal of Business and Management, Vol.14, No.18, 2022, DOI 10.7176/EJBM/14-18-03, publication date September 30th 2022. The paper analyzes pre-pandemic firm characteristics associated with coping strategies, using the World Bank Business Environment Enterprise Performance Survey (BEEPS VI) for Albania, North Macedonia, Montenegro, Bosnia and Herzegovina and Serbia combined with the World Bank Group COVID-19 Follow up Enterprise Surveys. It finds that pre-pandemic characteristics are associated with laying off fewer employees, filing less for insolvency or bankruptcy and adjusting operations, and that small firms were at a disadvantage. The results are offered to guide tailored support.

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European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.14, No.18, 2022

Firm Coping Strategies during the COVID-19 Pandemic:
Evidence from Western Balkan Countries
Zana Beqiri Luma
Mother Teresa University – Skopje, 1000, North Macedonia
E-mail of the corresponding author: zana.beqiri.luma@unt.edu.mk

Abstract
In this paper we analyze pre-pandemic firm characteristics that are significantly associated with different coping
strategies used by firms in order to deal with the consequences of the COVID-19 pandemic. The data we use
come from the sixth round of the World Bank Business Environment Enterprise Performance Survey (BEEPS VI)
for a sample of five Western Balkan countries: Albania, North Macedonia, Montenegro, Bosnia and Herzegovina
and Serbia, combined with the COVID-19 Follow up Enterprise Surveys conducted by the Enterprise Analysis
unit of the World Bank Group. We find that pre-pandemic firm characteristics are significantly associated with
certain positive outcomes such as laying off less employees, filing less for insolvency or bankruptcy and
adjusting business operations to the newly created circumstances. Furthermore, we find small firms to be
particularly at a disadvantage when coping with the pandemic. The results of this paper contribute to the growing
literature on the economic impact of COVID-19 and guides policy making in order to tailor government support
to those segments of the firm population that stand to benefit the most from such aid.
Keywords:COVID-19 pandemic; firm performance; Western Balkans; SMEs; firm liquidity; financial
constraints
DOI: 10.7176/EJBM/14-18-03
Publication date:September 30th 2022

1. Introduction
The COVID-19 pandemic which started as a health crisis, triggered widespread reactions by governments around
the world in an attempt to contain its spread. These containment measures have caused major disruptions to the
global economy. While the pandemic impacted every country in the world, developing countries, such as the
Western Balkan (WB) countries, were less able to respond to the pandemic as did their developed counterparts
due to lack of organizational and financial capabilities (Stiglitz, 2020). Firms in these countries, even before the
pandemic started, faced structural challenges such as inadequate labor force, lack of access to finance and a weak
institutional environment. A major disruption such as the one brought by the COVID-19 outbreak made these
firms even more vulnerable and forced them to find coping strategies in order to mitigate the impact of the crisis.
In this paper we analyze firms’ coping strategies during the COVID-19 crisis in a nationally representative
sample of five WB countries – Albania, Bosnia and Herzegovina, Montenegro, North Macedonia and Serbia.
Understanding which coping strategies firms use to deal with the pandemic-induced crisis is important for
designing supportive policies to mitigate the negative impact and to facilitate the post pandemic economic
recovery. As empirical evidence on firms’ coping strategies under conditions of adversity is lacking we try to fill
this gap, by providing to the best of our knowledge, the first empirical evidence of coping strategies used by
firms in the WB transition economies.
This paper contributes to the growing literature of the economic impact of the COVID-19 pandemic. The
impact of the COVID-19 outbreak has been analyzed from different perspectives. Some studies have looked at
the impact on stock markets (Albuquerque, Koskinen, Yang, & Zhang, 2020; Alfaro, Chari, Greenland, & Schott,
2020; Baker et al., 2020; Fahlenbrach, Rageth, & Stulz, 2021), others have analyzed the impact on credit markets
(Beck & Keil, 2022; Berger et al., 2021; Li, Strahan, & Zhang, 2020; Norden, Mesquita, & Wang, 2021), labor
market (Adams-Prassl, Boneva, Golin, & Rauh, 2020; Alfaro, Becerra, & Eslava, 2020), firm performance
(Bartik et al., 2020; Ding, Levine, Lin, & Xie, 2021; Fairlie & Fossen, 2021) as well as overall economic activity
(Eichenbaum, Rebelo, & Trabandt, 2021; Guerrieri, Lorenzoni, Straub, & Werning, 2020; Ludvigson, Ma, & Ng,
2020). Most closely related to our paper is Aga and Maemir (2021) who analyze the impact of COVID-19 on
firms’ coping strategies in Sub-Saharan Africa. Using nationally representative surveys of firms they find that
firms in Sub-Saharan African countries are disproportionally hit by the pandemic compared to other regions,
primarily due to the lower level of economic development of these countries. However, these firms are more
likely to adjust their operations to adapt to the newly created circumstances.

2. Data and Methodology
2.1 Data
We make use of a novel nationally representative survey database conducted by the Enterprise Analysis Unit of
the World Bank Group – the COVID-19 Follow-up survey, combined with the sixth round of the Business

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ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.14, No.18, 2022

Environment Enterprise Performance Survey (BEEPS VI). The purpose of BEEPS VI is to collect information
on the business environment on which firms operate, the obstacles they face in their day to day operations, their
perceptions of the institutional environment, as well as their finances, degree of competition and general
information about their organizational structure. The whole population, or the survey universe, are commercial,
service or industrial establishments with at least five employees in the non-agricultural sector. The sample is
selected using stratified random sampling with three levels of stratification: industry, establishment size and
region. The advantage of this sampling method, compared to simple random sampling is that it makes sure that
the final sample is not concentrated in one industry, region or size group, rather it is representative of all the
sectors in the economy. Furthermore, it provides the benefit of unbiased and more precise population estimates
compared to using a simple random sampling method. The COVID-19 Follow-up surveys is a data collection
effort with the aim to understand the impact of the pandemic on the private sector in several countries around the
world. All establishments from the last completed BEEPS survey, i.e. the baseline survey were recontacted and
asked questions about their current operating status, their finances, labor force as well as about their expectations
about the future. Table 1 shows the dates of completion of the baseline (BEEPS VI) survey as well as the
Follow-up survey for the five countries in our sample, along with the number of participating firms in both
surveys.

2.2 Variables and summary statistics
As we wish to determine which firm characteristics are associated with different coping strategies, we start by
constructing variables indicating different coping strategies used by firms in response to the pandemic outbreak.
Laid off and Furloughed are variables indicating the number (as a percentage of the total full-time employees of
the firm) of workers laid off and furloughed due to the COVID-19 outbreak. As can be seen from Table 2, on
average across the firms in our sample about 4% of employees have been laid off and 8% furloughed due to the
pandemic crisis. Converted is a dummy variable indicating firms that adjusted or converted partially or fully,
their production or the services they offer, whereas Technology is a dummy variable indicating the use of the
internet technology by firms to conduct their business activities in response to the COVID-19 outbreak. About
52% of firms in our sample have converted or adjusted their operations, and about 38% have made use of the
internet technology. Bank loan represents firms that rely mainly on loans from commercial banks to deal with
cash flow shortages, while Government support indicates firms that have received national or local government
support in response to the crisis. About 22 % of firms in our sample report loans from commercial banks as the
main source used to deal with cash flow shortages, whereas about 54% have received government assistance in
response to the COVID-19 outbreak. Finally, Filed is a dummy variable that takes the value of 1 for firms that
have filed for insolvency or bankruptcy since the outbreak of COVID-19. On average, about 3% of firms in our
sample have done so in response to the crisis.
There are also variations between countries with regards to the extent to which different coping strategies
are used by firms in different countries. For instance, as shown in Table 3, firms in Serbia are more likely to use
internet technology and receive government support in response to the crisis compared to firms in other WB
countries. On the other hand, firms in North Macedonia and Albania are more likely to adjust or convert the way
they operate in response to the COVID-19 outbreak.
In addition to the variables described above, we construct several variables regarding different
characteristics of firms which we use as independent variables. Table 2 shows the summary statistics of these
variables while Table A1 in the Appendix provides a detailed definition of all the variables used in the analysis.

2.3 Methodology
We use multiple regression analysis to estimate the relation between pre-pandemic firm characteristics and
different coping strategies used by firms. The specification we estimate takes the following form:

(1)

where, Outcome is one of the coping strategies used by firms, described in the previous section. The subscripts, i,
j, c, indicate firm, industry and country, respectively. Firm characteristics is a vector of independent variables
indicating different characteristics of firms described in Table A1 in the Appendix. β_0 is the equation intercept,
γ_j and δ_c are industry and country fixed effects, whereas ε_ijc is the error term. The equation is estimated
using OLS with standard errors clustered by industry.

3. Results
In Table 4 we present results from estimating equation (1) with coping strategies as dependent variables. In
columns 1 and 2 where the dependent variables are Laid off and Furloughed, respectively, we find innovative
firms, foreign and certified firms to be less likely to use the strategy of laying off or putting on furlough

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ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.14, No.18, 2022

employees as a way to cope with the pandemic-induced crisis. In particular, innovative and certified firms
furlough 3.4 % and 4.5% less of their full-time employees compared to their non-innovative and non-certified
counterparts. Similarly, foreign firms lay off 2.8% less of their full-time employees compared to domestic firms.
In column 3, where the dependent variable is Bank loan, we find small firms to be 9.4 p.p less likely to report
bank loans as the main source to deal with cash flow shortages, whereas certified firms are 8.6 p.p. more likely
to use loans from commercial banks as their main funding source. While innovative firms were less likely to
furlough employees they are 7.1 p.p. and 10.2 p.p. more likely to adjust or convert their operations in response to
the COVID-19 outbreak and to use internet technology, respectively (columns 4 and 5). As further shown in
column 5, other firm characteristics positively associated with the probability of using the internet technology as
a new way of doing business due to the COVID-19 outbreak are firms with a higher number of their permanent
full-time employees with a university degree (University degree), firms that offer formal training programs for
their employees (Training), those having an online presence i.e. having its own website before the pandemic
(Website). Being a member of a business support group (Membership), incorporating environmental and climate
change issues into their strategic objectives (Green) and being a foreign firm (Foreign firm) are also positively
associated with online business activities. On the contrary, being a small firm reduces the odds of starting or
increasing online business activities by 6.6 p.p. In column 6 we find firms which perceive finance to be an
obstacle for their operations and those with more educated labor force are less likely to rely on government
assistance as a way to deal with the crisis, while in column 7 we find older and exporting firms to be less likely
to file for insolvency or bankruptcy since the outbreak of COVID-19.
Overall, results in this section point to the important role pre-pandemic firm characteristics have in
determining the type of coping strategy adopted by firms. Several firm characteristics are associated with
positive outcomes such as laying off less employees, filing less for insolvency or bankruptcy and adjusting
business operations to the newly created circumstances. What is important to note from the regression results is
that small firms are particularly at a disadvantage when coping with the pandemic, as it has been found that they
are less likely both to make use of the internet technology and rely on bank loans to deal with cash flow
shortages. They are not significantly more likely to use government assistance either, leaving them more
vulnerable against uncertainties brought about by the COVID-19 outbreak.

4. Conclusion
The aim of this paper is to investigate which pre-pandemic firm characteristics are significantly associated with
certain coping strategies used by firms due to the COVID-19 outbreak. To this end we combine the World Bank
Business Environment Enterprise Performance Survey with the COVID-19 Follow-up Surveys for a nationally
representative sample of firms from Western Balkan countries. We find that firm characteristics before the start
of the pandemic are an important determinant of coping strategies used by firms and that small firms are
particularly disadvantaged at dealing with the negative effects of the pandemic. These results can serve as a
guide for policymakers seeking to mitigate the negative effects of the pandemic by providing government
assistance to the type of firms most vulnerable to the pandemic-induced crisis.

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Zana Beqiri Luma holds a PhD degree from City University of London, Bayes Business School (formerly Cass)
and an MSc degree from the University of Edinburgh. She is currently working as an Assistant Professor at the
Department of Business and Economics at Mother Teresa University – Skopje, North Macedonia.

Table 1. Survey information

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Table 2. Summary statistics

Table 3. Summary statistics by countries

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Table 4. Regression analysis

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APPENDIX
Table A1. Variable Definitions

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