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Small Bus Econ
https://doi.org/10.1007/s11187-021-00544-y
Economic effects oftheCOVID‑19 pandemic
onentrepreneurship andsmall businesses
MaksimBelitski · ChristinaGuenther·
AlexanderS.Kritikos· RoyThurik
Accepted: 27 July 2021
© The Author(s) 2021
but also creating productive entrepreneurship and
resilient location-specific entrepreneurial ecosystems.
The COVID-19 pandemic is an unprecedented chal-
lenge for small businesses that also brings new market
opportunities. The papers in this special issue of Small
Business Economics Journal aim to shed light on the
economic effects of the COVID-19 pandemic by look-
ing at the macro- and microeconomic effects on entre-
preneurship and small businesses as well as the role of
financial support policies and well-being in both devel-
oped and developing countries. Future research should
focus on the role of digitization and financial mecha-
nisms supporting small businesses during crises.
Keywords Small businesses· Entrepreneurs·
COVID-19 pandemic· Economic effects
Abstract The existential threat to small businesses,
based on their crucial role in the economy, is behind
the plethora of scholarly studies in 2020, the first year
of the COVID-19 pandemic. Examining the 15 contri-
butions of the special issue on the “Economic effects
of the COVID-19 pandemic on entrepreneurship and
small businesses,” the paper comprises four parts: a
systematic review of the literature on the effect on
entrepreneurship and small businesses; a discussion
of four literature strands based on this review; an
overview of the contributions in this special issue;
and some ideas for post-pandemic economic research.
Plain English Summary Responding to COVID-19
involves not just shielding small business jobs, sup-
porting entrepreneurship, and raising government debt
M.Belitski(*)
University ofReading, Henley Business School, Reading,
UK
e-mail: m.belitski@reading.ac.uk
M.Belitski
ICD Business School, IGS-Groupe, Paris, France
C.Guenther
WHU, Otto Beisheim School ofManagement, Vallendar,
Germany
e-mail: christina.guenther@whu.edu
A.S.Kritikos
German Institute forEconomic Research (DIW Berlin),
Berlin, Germany
e-mail: akritikos@diw.de
A.S.Kritikos
University ofPotsdam, Potsdam, Germany
A.S.Kritikos
IZA, Bonn, Germany
A.S.Kritikos
IAB, Nuremberg, Germany
R.Thurik
Montpellier Business School, Montpellier, France
e-mail: thurik@ese.eur.nl
R.Thurik
Erasmus School ofEconomics, Rotterdam, Netherlands
M.Belitski et al.
1 3
JEL classifications C14· H43· L25· L26· J68
1 Introduction
Epidemics and pandemics do not just come and go,
they impact the economy and society. For example,
the epidemic in the early 1830s, when France (and
other parts of central Europe) was hit hard by cholera
with hospitals overwhelmed by patients whose ail-
ments doctors could not explain (O’Sullivan, 2021).
While the epidemic wiped out at least 3% of Parisians
in the first month, it would contribute to an industrial
revolution in France. It also increased political insta-
bility and social disparity, with the city’s poor being
hit hardest by the pandemic, while the wealthier used
their savings and resources to relocate from pan-
demic-impacted cities and reduce their interactions
with the community (Economist, 2021).
The Spanish flu affected most of Europe and the USA
in 1918. While it infected 500 million people—about
a third of the world’s population at the time—it killed
between 20 and 50 million people across four successive
waves, including some 675,000 Americans (History.com,
2020). The enforcement of various restrictions varied
across the cities and countries: the New York City Health
Commissioner, for example, ordered businesses to open
and close on staggered shifts to avoid overcrowding on
the subway (History.com, 2020). In the USA and Europe,
businesses were forced to shut down because so many
employees were sick. Several authors demonstrate that the
Spanish flu pandemic gave way to new businesses, with
start-ups booming from 1919 in the middle of the pan-
demic onward (Beach etal., 2020; Karlsson etal., 2014).
The COVID-19 pandemic presents an unprecedented
challenge in many ways. First, it threatens millions of
people’s lives all over the world. It has already taken a
death toll of almost four million people worldwide, as of
the end of June 2021 (Worldometers, 2021). At the same
time, the social distancing guidelines, taken to contain
the virus, affected the service sector in particular, an
area where physical proximity often matters and a sector
that depends more on micro and small businesses than
the manufacturing sector.
Therefore, COVID-19 directly affected self-
employed individuals more than employed individuals
(Kritikos etal., 2020) and small businesses more than
large businesses, both in Europe and the USA (Digi-
tally Driven, 2020, 2021).
A survey conducted by NBER of more than 5800
small businesses in the USA found that 43% of small
firms were expected to be closed by December 2020
(Bartik etal., 2020). Small firms in hospitality, retail,
personal services, entertainment, and the arts were
most affected (Bartik et al., 2020). A survey con-
ducted by the Connected Commerce Council of more
than 5016 European small and medium-sized busi-
nesses carried out in November–December 2020
found that practically all SMEs were affected, with an
average 20% decrease in sales and a 16% decrease in
customer base (Digitally Driven, 2021).
Barrero etal., (2020: 17) demonstrate for the USA
that, “temporary layoffs and furloughs account for
77% of gross staffing reductions in the first months
of crises in the United States,” while the Financial
Times (2020) reports that, “more than 3m Americans
filed for first-time unemployment benefits during a
first week of May 2020, taking the number of appli-
cations for the first three months of the lockdown to
33.5 million. The number of working business own-
ers in the United States plummeted from 15.0 million
in February 2020 to 11.7 million two months later in
April” (Fairlie, 2020). In the UK, the unemployment
rate surged to its highest level since 2017 as the pan-
demic continued to affect jobs (Thomas, 2020). In the
long term, the COVID-19 pandemic is expected to
become a cleansing process and a large reallocation
shock (Caballero and Hammour, 1991) for firms of
different sizes and industries.
Governments throughout the world responded
with support initiatives. In the USA, the largest pro-
gram providing funds to small businesses is the Pay-
check Protection Program (PPP) with a volume of
$650 billion during the early stages of the pandemic
(Bhutta et al., 2020). The Small Business Admin-
istration (SBA)–administered program provided
loans to small businesses through banks, credit
unions, and other financial institutions with the
goal of keeping small businesses open and retain-
ing employees on the payroll (Fairlie & Fossen,
2021). In the UK, the government implemented the
Coronavirus Job Retention Scheme (CJRS) (popu-
larly known as “the Furlough” scheme) for waged
workers. The CJRS covers 80% of employee sala-
ries up to a maximum of £2500 per month. More
than 8.7 million jobs were furloughed at an esti-
mated total cost of around £60 billion (Yue & Cowl-
ing, 2021). After initially ignoring the 4.6 million
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
self-employed, the UK government announced the
Self-Employment Income Support Scheme, which
awarded grants of 70% of average monthly trad-
ing profits calculated from tax returns for 2018
and 2019. This scheme only applied to those self-
employed who earned less than £50,000 in profit
for the relevant period (Yue & Cowling, 2021).
The measures supported by the German govern-
ment intended to protect businesses and start-ups
affected by the COVID-19 crisis include taxation
support, state-supported short-time work compen-
sation schemes, improved measures at guarantee
banks, loans and special programs provided by KfW
(Kreditanstalt für Wiederaufbau) (PWC, 2020), and
an emergency aid that offers one-off lump sum pay-
ments to self-employed facing substantial revenue
declines (Block etal., 2020).
In China, measures started in February 2020
when Chinese central bank unblocked extensions
or renewals of loans to companies and announced
a reduction in the banks’ mandatory reserve ratio.
The government presented a package to support the
digitalization of SMEs in the context of the crisis.
A wide range of policy measures was announced
for SMEs at the regional level in China, includ-
ing deferred tax payments for SMEs, reducing
rent costs, waiving administrative fees, subsidizing
R&D costs for SMEs, social insurance subsidies,
subsidies for training and purchasing telework-
ing services, and additional funding to spur SME
loans (KPMG, 2020). The 2020 GEM report men-
tions that 54 national governments made emergency
policy decisions and actions in response to the
COVID-19 pandemic (GEM 2020). Unprecedented
amounts of state aid were channeled into propping
up economies around the globe.
Despite the deployment of administrative, fiscal,
and monetary tools to counter the fall in employ-
ment and demand, it seemed unlikely that these
measures will be enough to attain a full offset. The
response to COVID-19 requires both top-down and
bottom-up approaches, e.g., government and pri-
vate initiatives to support productive entrepreneurs,
instead of dying industries and failing firms.
The shock of the pandemic may further increase
inequality in at least two ways: First, female own-
ers of small businesses faced a 35% higher prob-
ability of experiencing income losses than their
male counterparts with the gender gap among the
self-employed being largely explained by the fact
that women disproportionately work in industries
that are more severely affected by the COVID-19
pandemic (Graeber et al., 2021). Second, the con-
sequences of the COVID-19 pandemic may be more
pronounced for minorities in developed (Fairlie and
Fossen, 2021) and developing countries (Malisze-
wska etal., 2020; Pereira & Patel, 2021).
More efficient and productive incumbents are
likely to grow, with new businesses and industries
emerging. The new “Never-Meet-in-Person Era” will
change industries, impacting large and small firms in
certain industries, such as transport, hospitality, arts
and entertainment, and personal services. The weight
of hybrid firms, platform-based firms, and platform-
matchmakers in the global economy will grow rapidly
(Kenney & Zysman, 2020).
The emergence of digital technologies has signifi-
cantly reduced the economic costs of data—search,
storage, computation, transmission—and enabled
new economic activities during the COVID-19 pan-
demic and a change in lifestyle. Since the start of the
pandemic, small and large firms, able to create a plat-
form-based ecosystem, have become a force of “crea-
tive destruction,” value creation, and value appropria-
tion (Acs etal., 2021).
The big issue is how the shock and the resulting
recession will affect firms, large and small, young
and mature, family and non-family firms, community-
embedded small firms, and platform-based blitz-scal-
ers not only in the short term but also the mid- and
long terms. Will this be different than for any other
exogeneous shock?
The potential consequences for businesses may
include but are not limited to closed premises,
reduced operating hours, job cuts, supply chain dis-
ruptions, jeopardizing the R&D processes, cessation
of operations, business model changes, loss of key
customers, and restrictions on products/services.
News stories highlight the millions of layoffs
triggered by the pandemic and lockdown (Barrero
et al., 2020), while they also relate to examples of
large-scale hiring. For example, on April 18, 2020,
Walmart reported that it had hired 150,000 new
employees, with plans to hire 50,000 more (Nassauer,
2020). Fidelity Investments and Fifth Third Bancorp
have also been on “hiring sprees,” and hires through
M.Belitski et al.
1 3
Zoom eliminated the worry to be spotted during a job
interview lunch by current employers. Will this be the
beginning of a new revolution toward large multina-
tional corporate structure, away from micro and small
businesses? Businesses may have had different expe-
riences from responding to the previous recessions
and other pandemics but can these lessons be useful
for small and large firms to respond to COVID-19?
Therefore, the objective of this special issue is to
examine the economic effects of the COVID-19 pan-
demic on entrepreneurship and small businesses as
well as help to promote research and economic impli-
cations relevant to understanding the nature of the
pandemic shock, consequences, and opportunities for
SMEs and large firms in the short- and long-term per-
spectives more broadly.
The present introduction to the special issue is
organized as follows. It consists of four parts: a
systematic review of the literature on the effect of
COVID-19 on entrepreneurship and small busi-
nesses; a discussion of four literature strands based
on this overview; an overview of the contributions
in this special issue; and some ideas about the post-
pandemic economic research, organized according to
four avenues.
2 Systematic literature review
We start our analysis by performing a “systematic lit-
erature review” (Tranfield etal., 2003). It is a reliable
and efficient method of identifying and evaluating
a sizeable literature volume and is widely used in
business research (Verma & Gustafsson, 2020). The
advantage of this method is that it allows for captur-
ing all existing studies on the topic, to incorporate
quantitative, qualitative, and mixed-method studies,
as well as to identify the state of knowledge regarding
theories, special entities, and fields of study.
Based on this systematic and comprehensive litera-
ture review, we investigate research gaps and identify
areas that require further research using the Scopus
and Web of Science database, taking our lead from
prior systematic literature reviews of Rousseau etal.
(2008) and Verma and Gustafsson (2020). Before
moving to the systematic literature review on the
effect of COVID-19 pandemic on small business and
entrepreneurship, we wanted to find out whether there
is prior research on the economic effects of historic
pandemics, such as the Spanish flu. Therefore, we use
the period of 50years, which resulted in only 60 pub-
lications, related to the effect of Spanish flu on small
businesses. Interestingly, most papers on the effect of
the Spanish flu on small business were published dur-
ing the COVID-19 pandemic (see Fig.1). Research-
ers from the USA, UK, and Canada have led this field
of research.
Our next, and main, step was to review the litera-
ture on the economic effects of COVID-19 on small
businesses and entrepreneurship. We used the period
from December 2019 to June 2021 because it cor-
responds to the pandemic period. We included all
articles, data sets, early-access publications, and data
studies in English, yielding 3607 published pieces.
Once we applied the selection criteria, including only
Fig. 1 Timeline of publica-
tions on small business and
the Spanish flu. Note: 2021
is an incomplete year since
the research was done in
May of that year
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
articles published in international peer-reviewed jour-
nals, in English and the area of study, the number
of publications dropped to 1789. The distribution of
articles by field of science is as follows: social sci-
ences (29.3%), business management (22.6%), eco-
nomics (12.9%), environmental sciences (10.9%),
energy (8.8%), organizational studies (2.3%), arts
and humanities (2.0%), psychology (1.9%), and other
(9.30%).
In the third stage, we used the field of research
exclusion criteria with the aim of retaining publica-
tions from relevant fields such as business economics,
management, social sciences, and economics. Most of
the publications come from the USA, China, and the
UK (see Fig.2).
We excluded the BIOSIS Citation Index, BIOSIS
Previews, Medline, Zoological Record, and FSTA.
This means that we just kept the Web of Science
and Scopus databases, yielding to 285 papers. Based
on the keywords, text, and abstracts from these 285
papers, we created the visualization network to iden-
tify the themes related to the impact of COVID-19 on
small businesses using VOSviewer. Co-word analysis
applies text-mining techniques to the papers’ titles,
abstracts, keywords, and text. Co-word connections
allow for identifying and combining multiple co-
occurrences and keywords in the same paper, as well
as determining the relationship between different key-
words (Verma & Gustafsson, 2020).
The outcome of the systemic literature review
resulted in a keywords network visualization that
required (i) selecting the patterns of topics and (ii)
clustering topics theories: digitization and open
innovation, resilience and disaster, knowledge crea-
tion and learning (dynamic capabilities), including
industry effects (e.g., healthcare, information tech-
nology, tourisms) (Fig.3). The theories were identi-
fied by reading all the abstracts and keywords of the
285 papers. These four theories are further explained
in the next section and will be matched to the papers
that comprise this special issue. We note that a clear
discrimination between these literatures is not always
possible.
Fig. 2 The region of the
publications on small busi-
ness and COVID-19
Fig. 3 The keywords network visualization
M.Belitski et al.
1 3
3 Theories andcontributions
Based on the systematic literature review, this section
describes how four literatures can be used by scholars
to better understand and explain the economic effects
of the COVID-19 pandemic on small business across
different countries, firm sizes, and the severity of the
crisis. First, there is disaster theory literature, which
focuses on the financial and physical resources ena-
bling small firms to be more resilient during crises. A
body of literature stresses the importance of commu-
nity-based networks and the role of social capital in
helping small businesses to respond to disasters (Bin
& Edwards, 2009; Torres etal., 2019).
Torres et al. (2019) investigate small business
owners’ response to natural disasters and catastrophes
through the lens of resources and social capital, draw-
ing a line between resilient small businesses that not
only remain operating but also thrive after a disaster
and those exiting. Evidence focusing on small busi-
nesses shows that they widely engage in disaster relief
for their community (Bin & Edwards, 2009), clarify-
ing that in addition to governments, entrepreneurs and
small businesses also become active (Markman etal.,
2019). Post-disaster business resilience is the product
of many complex decisions resulting from the inter-
action of individuals, families, businesses, and com-
munities (Marshall & Schrank, 2014).
Second, responses to crises and exogeneous shocks
is at the heart of resilience theory. The origins of the
resilience concept in the business literature go back
to Staw etal. (1981) and Meyer (1982). Both authors
draw upon variation–selection–retention mechanisms
posited by evolutionary theory (Campbell 1965)
and develop very different propositions regarding
how organizations respond to external shocks. Staw
et al. (1981) introduce a theory on how negatively
framed situations lead to risk avoidance in the form
of “threat-rigidity effects.” Meyer (1982) extends the
resilience framework by studying hospital responses
to an unexpected doctors’ strike or “environmen-
tal jolt,” contradicting the proposition by Staw et al.
(1981) that an external threat automatically places an
organization at risk.
Resilience takes place over time and is related to
the recovery of individuals, businesses, communities,
and institutions. Most studies consider post-disaster
business resilience as a binary stage of open or closed
businesses (Marshall & Schrank, 2014). By capturing
measures and processes that contribute to small busi-
ness resilience as a disaster response, Tugade and Fre-
drickson (2004) provide real world examples, while
Torres etal. (2019) emphasize the role of community
and support to entrepreneurs in a post-shock period.
Research on resilience and post-disaster manage-
ment literature began to comment that there are few
avenues to detect whether or not an entrepreneur
had “resilience potential,” prior to demonstrating
a resilient or non-resilient response (Linnenluecke
et al., 2012). Furthermore, researchers argue that
more attention should be devoted to the period of
detecting a threat and activating firm’s response.
Conceptualization of organizational resilience
broadly fall in three categories: (1) resilience as an
outcome, (2) resilience as a process, and (3) resil-
ience capabilities (Bullough et al., 2014; Duchek,
2020).
In the post-COVID world, agile and resilient new
businesses will be able to take advantage of their
entrepreneurial orientation and find opportunities
in the upheaval that the pandemic has caused glob-
ally (Zahra, 2020). In an environment characterized
by high volatility and uncertainty, the importance
of the firms’ dynamic capabilities (DC) to integrate
resources in recognizing new opportunities is also
further heightened (Battisti & Deakins, 2017). The
role of DCs and the role of resilience (Bergami et.
al, 2021; Bullough & Renko, 2013; Bullough et al.,
2014) are differentiators between not just the survival
and failure of small businesses and entrepreneurs and
also the speed with which new ventures are able to
learn, both determining their growth and survival in
the long term (Zahra, 2020).
Third, there is a literature on the role of knowl-
edge creation and absorptive capacity in addressing
the negative effects of disasters and crises. Dynamic
capabilities (DC) are the key concept underlying
absorptive capacity as the antecedent organizational
and strategic routines by which managers alter their
resource base—acquire and shed resources, integrate
them together, and recombine them—to generate new
value-creating strategies (Eisenhardt & Martin, 2000;
Grant, 1996). Teece etal., (1997: 516) defines DCs as
“the firm’s ability to integrate, build, and reconfigure
internal and external competences to address rapidly
changing environments. Dynamic capabilities thus
reflect an organization’s ability to achieve new and
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
innovative forms of competitive advantage given path
dependencies and market positions.”
Managing uncertainty tends to be the new normal
for many companies around the world (i.e., climate
change, COVID-19), thus stressing the importance
of creating competitive advantage and improving
dynamic capabilities that are so important for small
business (Arend, 2013) and that seem to be the only
antidotes to uncertainty during the COVID-19 pan-
demic (Flammer & Ioannou, 2020).
The role of dynamic capabilities was brought
forward by Priyono etal. (2020) in their analysis
of how small businesses cope with environmental
changes due to the COVID-19 pandemic by pur-
suing the business model transformation with the
change in dynamic capabilities related to adaptation
of digital technologies and digital skills.
Dynamic capabilities, which became even more
relevant in the digital era (Li etal., 2016), enable
small businesses to adopt digital tools more quickly
and efficiently. This enables stronger response to the
COVID-19 pandemic. For example, Audretsch and
Belitski (2021) demonstrate how European small
businesses adopt digital technologies and develop
strategic, managerial, and digital skills to increase
their efficiency.
The DC theory could be relevant in the response
to the volatility, velocity, and criticality of COVID-
19 effects (Obal & Gao, 2020), for instance, by
redeploying salespeople to virtual rather than physi-
cal sales calls. The literature on dynamic capabili-
ties could draw on prior research in times of high
turbulence but is sparse and focuses mainly on
financial crises. For example, Fainshmidt and Fra-
zier (2017) and Makkonen etal. (2014) find a dis-
connect between pre-crisis settings and the types of
DCs most useful during crisis.
Bartik et al. (2020) and Kuckertz et al. (2020)
suggest how government initiatives help businesses
cope with the COVID-19 pandemic. A further clus-
ter of papers use information gathering surveys
(e.g., Bartik et al., 2020; Fairlie, 2020; Kritikos,
etal., 2020) and case studies (Kuckertz etal., 2020;
Robinson & Kengatharan, 2020). There is a lack of
research on the intersection of the pandemic and
DCs.
It is important to understand the boundary con-
ditions explaining whether DCs can benefit small
businesses compared to larger firms. Prior research
suggests the existence of a positive feedback loop
that results in firms with the largest initial capability
endowments generating more new capabilities. Taken
together, despite prior research on DC in small busi-
nesses (Arend, 2013; Fainshmidt & Frazier, 2017),
only a few studies deal with the role of firm size in
determining DCs and in response to the COVID-19
shock.
The fourth strand of literature is related to digi-
tization and the role of digital capabilities in adopt-
ing new business models, responding to uncertainty,
and developing resilience. Behavior of rapidly grow-
ing small businesses depends on their business mod-
els (Hennart, 2014; Kuratko et al., 2020), and the
role of digitally enabled firms and business models
is important in times of volatility (Li et al., 2016;
Vadana etal., 2019). The role of digital capabilities
is expected to grow in importance for entrepreneurship
and small business research and practice during and
after the COVID-19 crisis. Digital capabilities will be
able to change business models and introduce busi-
ness model innovation (Clauss et al., 2019). In the
entrepreneurship literature, entrepreneurial growth
remains an oft-neglected topic of research, as only
a few studies (Asemokha etal., 2019; Child et al.,
2017) shed light on the dynamics of business models
and growth or performance in entrepreneurship.
There is still a gap with respect to understanding
which DCs need to be developed for firms to respond
to opportunities of COVID-19, such as digitalization
and business model change (Seetharaman, 2020).
Works on digitization in small businesses analyze
the implementation of business intelligence as part of
their efforts to increase competitiveness in a highly
dynamic business environment. A better understand-
ing of the adoption levels of innovation by small busi-
nesses is relevant due to the important contribution of
small businesses to both employment generation and
economic growth (Audretsch etal. 2021b).
Studies commissioned by Google in the USA in
2020 and in Europe in 2021 demonstrate that the so-
called Digital Safety Net has empowered millions of
small businesses to shift resources, modify business
plans, and continually evolve throughout the pan-
demic (Digitally Driven, 2021). The COVID-19 pan-
demic threatened small businesses globally, but their
use of digital tools has acted as a “Digital Safety Net”
and saved many of them (Digitally Driven, 2020,
2021).
M.Belitski et al.
1 3
4 Papers inthepresent special issue
The papers in this special issue can be divided into
four strands by the unit of analysis, policy implica-
tions, and the literature used. These strands can be
connected to the four literatures distinguished in the
previous section. The first strand reveals the macro-
economic effects of Covid-19 on entrepreneurship,
small businesses, and the role of digital technolo-
gies in changing work routines of entrepreneurs,
which relates to the literature on disaster manage-
ment and the role of digital tools and capabilities.
The second strand touches upon the economic and
socio-psychological impact of the COVID-19 pan-
demic on entrepreneurship building on resilience
literature and literature on the role of dynamic capa-
bilities, in addition raising the issues of inequality
and the effects of COVID-19 in developing and
developed economies. The third strand deals with
financial support to small businesses and entrepre-
neurship, building on the literature that addresses
the negative effects of disasters and crises as well
as macroeconomic responses to shocks. Finally, the
fourth strand discusses the effect of various policy
and well-being issues for small businesses during
COVID-19 drawing on resilience and disaster the-
ory literature.
The first strand contains three papers. Address-
ing the macroeconomic effects of COVID-19 on the
way of living and working, a study of Zhang et al.
(2021) “Working from Home: Small Business Per-
formance and the COVID-19 Pandemic” focuses on
working from home as an opportunity rather than an
activity that leads to frustration, loneliness, and wor-
ries about the future (Banerjee & Rai, 2020). In this
paper, working from home appears to be an oppor-
tunity to improve small businesses’ performance in
the COVID-19 crisis. The authors built a theoretical
framework based on firm profit maximization using
daily and weekly data to demonstrate that working
from home impacts the industrial structure and peo-
ples’ work behavior.
A study by Meurer etal. (2021) demonstrates how
entrepreneurs can use alternative support sources of
communication and business, such as online commu-
nities, raising the question of how support is created
in such spaces. Drawing on an affordances perspec-
tive, the authors investigate how entrepreneurs inter-
act with online communities and base their qualitative
analysis on conversation data (76,365 posts) from an
online community of entrepreneurs on Reddit dur-
ing the COVID-19 pandemic. The findings draw out
four affordances that online communities offer to
entrepreneurs (resolving problems, reframing prob-
lems, reflecting on situations, refocusing thinking and
efforts), resulting in a framework of entrepreneurial
support creation in online communities.
Altogether these two papers demonstrate how
small businesses and individual entrepreneurs can
adjust to new business conditions by working from
home, developing new business models, and seeking
social support to leverage the negative impact of the
COVID-19 pandemic.
The study of Pedauga et al. (2021), “Macro-
economic Lockdown and SMEs: The Impact of the
COVID-19 Pandemic in Spain,” takes a macroeco-
nomic perspective to empirically test the role of small
business in the economy. The authors use a financial
social accounting matrix to distinguish between the
direct and indirect effects that are transferred from
micro, small, medium, and large firms to the rest of
the economy during the COVID-19 pandemic. The
authors explore the sequence of reactions associated
with shocks that arise from the COVID-19 lockdown
to small businesses using a structural model for the
Spanish economy and identifying the role of busi-
nesses of different sizes for the gross domestic prod-
uct (GDP). Interestingly, small businesses “explain”
43% of the gross domestic product and two-thirds of
the unemployment decline caused by the COVID-19
pandemic.
The second strand of studies in this special issue
examines the economic and non-economic impact on
small business performance of the COVID-19 pan-
demic. The study of Grözinger etal. (2021) on “The
Power of Positivity: Organizational Psychological
Capital and Firm Performance During Exogenous
Crisis” investigates how psychological capital in
businesses impacts performance and creative inno-
vation through organizational citizenship behavior,
solidarity, and cooperation. The authors use structural
equation modelling and regression analysis on 379
small businesses to demonstrate that psychological
capital positively influences creative innovation and
thus performance during crises. This research con-
tributes to the organizational behavior approach of
the small business literature by showing that psycho-
logical resources of small businesses can strengthen
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
performance in times of crisis and help to prepare for
future shocks.
The study by Torrès etal. (2021a), “Risk of Burn-
out in French Entrepreneurs During the COVID-19
Crisis,” discriminates between three sources of burn-
out: the threat of becoming ill, having to stay at home
due to the lockdown, and having to file for bank-
ruptcy due to the economic downturn. They use seven
data sets of French entrepreneurs with a temporal
comparison of averages and two data sets of French
entrepreneurs with a cross-sectional analysis of indi-
viduals. They show that the risk of burnout increased
during the pandemic, that all three factors play impor-
tant roles, and that the financial threat is the dominant
one. These findings call for the extension of entrepre-
neurial support systems beyond the financial by also
involving an “entrepreneurship care” aspect, which
includes telephone support, webinars, mental help
facilities, and other support measures.
The study by Kalenkoski and Wulff Pabilonia
(2021), called “Impacts of COVID-19 on the Self-
employed,” uses monthly panel data from the Cur-
rent Population Survey in the USA and examines
the initial impacts of COVID-19 on the employment
and hours of unincorporated self-employed work-
ers. The authors find that effects become visible in
March 2020 as voluntary social distancing started,
peaked in April during the complete shutdown, and
were slightly smaller in May. They conclude that self-
employed married mothers were hit hardest and were
even forced out of the labor force to care for children.
Moreover, remote work and working in an essential
industry mitigate some of the negative effects on
employment and hours worked.
Pereira and Patel (2021) in their study, “Is the
Impact of COVID-19 More Severe on Self-employed
of Colour? Large Scale Evidence from Brazil,” com-
plement prior research on self-employed from racial
minority groups and use resilience theory to explain
how minority self-employed in Brazil responded
to the COVID-19 pandemic with lessons for other
developing countries (e.g., Sri Lanka) (Robinson &
Kengatharan, 2020). The paper extends the argument
that minorities may face greater adversity from the
COVID-19 pandemic in the USA and other developed
countries (Buheji et al., 2020), while there is little
evidence that minority self-employed in a developing
country are also significantly affected in the context
of the COVID-19 pandemic.
The third strand of studies brings together the role
of financing for entrepreneurship and small busi-
nesses in crises and a variety of support tools. Studies
in this part discuss the role of financial support and
other government programs to respond to economic
disruption. Various support policies were developed
and provided by governments all over the world in
response to address their small businesses’ financing
needs. In a paper by Liu etal. (2021), “SMEs’ Line of
Credit under the COVID-19: Evidence from China,”
the Chinese SMEs’ financing responses to the out-
break of COVID-19 are examined. The study shows
the supportive role of Chinese state-owned banks on
small businesses’ lines of credit. These policy instru-
ments can be broadly categorized into loan guaran-
tees, direct lending to small businesses, grants and
subsidies, and equity instruments. Interestingly, there
are considerable differences in supporting small busi-
nesses’ financing policies between countries. For
example, in the USA, European Union, the UK, and
China and Russia, policies to support small busi-
nesses during the pandemic were a commonplace.
Brazilian and Indian government provided little sup-
port to small business.
The study of Fairlie and Fossen (2021), “Did the
Paycheck Protection Program and Economic Injury
Disaster Loan Program Get Disbursed to Minority
Communities in the Early Stages of COVID-19?,”
examines the effect of the US federal government
response to help small businesses—the Paycheck
Protection Program (PPP) and the related Economic
Injury Disaster Loans (EIDL). The program’s stated
goal is helping disadvantaged groups. The authors
provide the first detailed analysis of how the 2020
PPP and EIDL funds were disbursed across minor-
ity communities in the country. The authors find a
positive relationship between PPP loan receipt per
business and the minority share of the population or
businesses, although funds flowed to minority com-
munities later than to communities with lower minor-
ity shares. This study acknowledges the importance of
financial support through PPP loans of minority com-
munities as a share of the population. The important
evidence is that the EIDL program, both in numbers
per business and amounts per employee, was posi-
tively distributed to minority communities. This is the
first study about how loans and advances from these
programs were distributed between minority and non-
minority communities.
M.Belitski et al.
1 3
Another study by Atkins etal. (2021), “Discrimi-
nation in Lending? Evidence from the Paycheck
Protection Program,” adds to our understanding of
the role of race in loans made through the Paycheck
Protection Program (PPP). Expanding the paper of
Fairlie and Fossen (2021), the authors argue that the
historical record and PPP program design choices
made it likely that many Black-owned businesses
received smaller PPP loans than White-owned busi-
nesses: Black-owned businesses received loans that
were approximately 50% smaller than observa-
tionally similar White-owned businesses. Interest-
ingly, the effect is marginally smaller in areas with
more bank competition and disappeared over time
as changes to the PPP program were implemented
allowing for entry by fintechs and other non-tradi-
tional lenders.
The study by Block etal (2021), “The Determi-
nants of Bootstrap Financing in Crises: Evidence
from Entrepreneurial Ventures in the COVID-19
Pandemic,” investigates the measures that entrepre-
neurial ventures undertake to preserve liquidity. The
authors build on prior research on bootstrap financing
as an important enabler for the growth of resource-
constrained early-stage ventures. Their work fills
the gap about the use of bootstrap financing during
COVID-19, during which the preservation of liquid-
ity is particularly salient. The determinants of boot-
strap financing are embedded into a “necessity”
human capital perspective and an “opportunity” cost
perspective. The analyses are based on data of 17,046
German entrepreneurial ventures.
The study of Dörr etal. (2021), “Small Firms and
the COVID-19 Insolvency Gap,” focuses on fiscal
policy in rescuing companies short of liquidity from
insolvency. The authors show that, in the first months
of the crisis, the small businesses that are the back-
bone of Germany’s economy benefited from large and
mainly indiscriminate aid measures. The authors esti-
mate the extent to which the policy response induced
an insolvency gap and analyze whether the gap is
characterized by firms that were already struggling
before the pandemic. They also examined whether
this insolvency gap differs with respect to firm size
and find that the gap was larger for smaller firms. The
theoretical contribution of the paper is in translating
Schumpeter’s theory of the cleansing effect in eco-
nomic crises into an empirical assessment by estimat-
ing the size of a policy-induced insolvency gap using
firm-specific credit rating data combined with infor-
mation on insolvency filings.
The fourth strand of studies represents a variety of
micro and macro public support and well-being pro-
grams aiming to mitigate the negative effects of the
COVID-19 crises.
The Lastauskas (2021) study, called “Lockdown,
Employment Adjustment, and Financial Frictions,”
examines businesses’ employment adjustments after
the imposition of stringent lockdown in March 2020.
It uses monthly administrative data and takes value-
added tax payment changes as a proxy for the demand
shock. The main finding is that all businesses in the
manufacturing sector reduced employment more if
they had uncovered tax liabilities before the lock-
down. Among small businesses, those in the real
estate and the service sectors downsized more rapidly.
While employment changes are rather modest, this
early evidence points to the importance of address-
ing liquidity needs and specific pre-conditions among
capital-intensive and services businesses to avoid
employment losses.
The Belghitar etal. (2021) study, “When the rainy
day is the worst hurricane ever: the effects of govern-
mental policies on SMEs during COVID-19,” exam-
ines the impact of COVID-19 on 42,401 UK small
businesses and how government intervention affected
their capability to survive the pandemic. The results
show that, without governmental mitigation schemes,
59% of UK small businesses report negative earn-
ings and that their residual life is reduced from 164
to 139days. This analysis demonstrates that govern-
ment financial support may reduce the number of
small businesses with negative earnings and allows
extending the residual life for small businesses with
negative earnings up to 194days. Block etal. (2020),
who analyze the first emergency aid program in Ger-
many, find similar effects among German businesses
hit by the crisis. Interestingly, the study of Belghitar
et al. (2021) highlights that—in contrast to Block
etal (2020)—those industries that were worst hit by
COVID-19 are not those that benefited the most from
the government support scheme. The possible reason
is that the government scheme does not differentiate
between firms that do or do not deserve support.
Finally, the study of Braunerhjelm (2021) deals
with macro-economic stabilization policies and dis-
cusses that targeting aggregate demand may not suf-
fice to mitigate the comprehensive effects of the
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
COVID-19 crisis. Entitled “Rethinking Stabilization
Policies: Including Supply-side Effects and Entre-
preneurial Processes,” it suggests that a more active
role for fiscal policies is needed and presents a modi-
fied framework for stabilization policies, giving an
extended role to supply-side measures and empha-
sizing policies that can promote entrepreneurial
processes and knowledge upgrading efforts. Align-
ing policies at the micro- and macro-levels can be
expected to counteract economic downturns more
efficiently as the potential for long-term growth is
enhanced. Such a redirection of stabilization policies
is argued to strengthen the competitive standing of
both firms and individuals.
5 Future research
There are many discussions and arguments proclaim-
ing that nothing in business will be left unchanged:
in the post-COVID world, there will be opportunities
for entrepreneurs to embark on creating new products
and services, with novel business models and busi-
ness routines arising that are different from traditional
ones (Janssen et al., 2021). Changes in (the percep-
tion of) well-being, the way of consuming, in the way
of filtering out the resilient and the agile, the adop-
tion of new digital technologies and learning skills,
and much more will all contribute to something that
some call the “new normal.” Below, we contribute
to this discussion with respect to four dimensions of
future research, all connected to the contents of this
special issue, initially sparked by our discussions with
authors and referees during the online paper-develop-
ment-workshop organized by the University of Read-
ing on November 20, 2020: caution is warranted as all
suffer from a certain degree of speculation.
5.1 Long- and short-term economic effect of
COVID-19
The results of several papers in this special issue
demonstrate that investigating the long-term effects
induced by the policy responses to COVID-19 on
turnover, productivity, innovation, and entrepreneur-
ship in developed countries is needed. However,
future research may also want to demonstrate a wider
economic, political, and societal challenge, including
inequality and poverty, unemployment within poor
countries, and the gap between rich and poor coun-
tries (Bartik et al., 2020; Robinson & Kengatharan,
2020).
Real wages in certain sectors may rise, such as
tourism, hospitality, and restaurants, as the disease
reduces the supply of workers, leaving survivors in a
stronger bargaining position.
The macro- and microeconomic effects of the
COVID-19 shock are different between small and
large firms as well as between the self-employed
and incorporated business. Smaller businesses are
typically disadvantaged in their ability to capture the
opportunities that crises have created. It is impor-
tant to research further the role of local and national
governments, public organizations, civil society, and
other stakeholders in mitigating the effect of crises.
Forming partnerships between small and large
firms, the role of open innovation and knowledge
spillovers may emerge as an important conduit for
entrepreneurship and for mitigating the effects of
COVID-19. Particularly interesting is the dynamics
of so-called science, technology, engineering, and
mathematics (STEM)–related jobs in the long term.
Further insights are needed to understand eco-
nomic and psychological drivers of innovation dur-
ing crises. While previous research demonstrates
that context matters (Audretsch etal., 2021a; Welter,
2011; Welter etal., 2019), the context of a crisis is
a compelling, yet understudied, one. Welter et al.
(2019) outlines three recent and overlapping waves
of contextualization in the entrepreneurship field and
shows that the discussion has moved from challeng-
ing the Silicon Valley model by considering the why,
what, and how of entrepreneurship (first wave) to
considering more subjective elements in enactment
of contexts (second wave), through broadening the
domain of entrepreneurship research (third wave).
To quantify the effect of the COVID-19 lockdown
on economic activity, it may be possible to consider
the links between all three waves (Welter etal., 2019)
at the idiosyncratic level and their aggregate impact.
It is probably not just sectoral issues and those issues
related to the labor market or economic growth that
play a role, but also deeper mental issues (Torrès
etal., 2021a).
M.Belitski et al.
1 3
5.2 The use of digital technology, competencies, and
robots
Digital skills trends seem to be interacting with the
pandemic and its social, political, economic, envi-
ronmental, and demographic tensions, combining to
accelerate the reconfiguration of production and ser-
vice systems. This reconfiguration of existing skills
and adoption of digital skills not only affects employ-
ment trends, but also the way we work and experience
our mental and physical health, perhaps even long
after the crisis is over.
The role of digital technology has significantly
increased under COVID-19. For instance, digital
technologies affected the way firms do head-hunting
during COVID-19 as well as how products and ser-
vices are manufactured and delivered. During dis-
ease outbreaks—Ebola in 2014–2016 and COVID-19
in 2019, among others—the adoption of robot and
digital tools accelerates, especially when the health
impact is severe and associated with potential eco-
nomic losses or economic crises.
Entrepreneurship in the post-pandemic world will
further fuse with the digital economy. This will take
the form of entrepreneurs increasingly selling prod-
ucts on digital platforms, using digital tools like Tik-
Tok for marketing and relying on platforms such as
Kickstarter for funding. Moreover, we believe that
entrepreneurs will further seek to use peers in online
communities to develop opportunities, get assistance
with problems, and find collaborators. The key impli-
cation is that, while entrepreneurs in the past have
often physically worked side by side to develop their
business locally, in the future such bounds will play a
diminishing role. One can start a business in Ghana,
work with a programmer in Indonesia, find a mar-
keting specialist in Paris, secure funding over Kick-
starter, and sell the product through a digital platform.
In other words, COVID-19 fosters the transition of
the entrepreneurial economy into a digital, disembod-
ied economy. The next big technology to be adopted
at large scale is likely to be 5G. The large-scale use of
artificial intelligence is being pushed but may not be
relevant until 2025 at the earliest. Quantum comput-
ing is also being pushed, but not likely to affect small
businesses before 2030.
All small businesses must be prepared for the
“new normal” of a digitally driven economy (Meurer
et al., 2021). Many are well positioned, but others
feel uncertain due to challenges accessing capital,
tools, and training, as well as with measuring suc-
cess. During the pandemic, so-called advanced small
businesses invested more than twice as much money
in digital tools than the so-called uncertain small
businesses (Digitally Driven, 2021). The working
environment changed fundamentally with the digitali-
zation and flexibilization of work receiving a consid-
erable boost. These changes probably make compa-
nies more resilient to future shocks.
Even though the self-employed initially were hit
harder by the COVID-19 pandemic than larger firms
in the USA and Europe (Digitally Driven, 2020,
2021), there is reason to be optimistic because, for the
millions of SMEs that still lack skills, technology, and
resources, adopting digital tools is within reach with
the right mindset, strategy, access to world-class digi-
tal technologies, and training. As the working world
has become more flexible, it is likely that mixed
forms of remote and physical working (especially in
teams) will become accepted in the future. However,
we also learned that remote work cannot sufficiently
replace personal encounters in all cases. Therefore,
we believe that society and the working world will
learn to appreciate such personal encounters again
and that these will be valued differently in the future.
Future research may need to better understand the
role personal encounters and skills, which, along with
new technology, will be valued more in the future.
5.3 Financing for entrepreneurship
As witnessed by several contributions in the present
special issue, there are many promising avenues for
research regarding what drives the financing of entre-
preneurial activity during and after the COVID-19
crisis. For example, we would expect that entrepre-
neurial motivation may play an important role, along
with networks of venture capital and angel investors.
A significant share of solo self-employed individuals
start their businesses out of necessity (Block et al.,
2015; Caliendo & Kritikos, 2019; De Vries et al.,
2020; Zwan etal., 2016). As policymakers want more
high-growth ventures to recover from the crisis, their
interest in opportunity-driven entrepreneurs may
grow. Human and social capital including networks
for entrepreneurship may be important for sourcing
entrepreneurial financing. Finally, research should
also analyze performance effects and investigate
Economic effects oftheCOVID-19 pandemic onentrepreneurship andsmall businesses
1 3
whether and how various sources of finance, beyond
bootstrapping during the COVID-19 crisis, may
impact long-term entrepreneurial performance, sur-
vival, and high growth (Audretsch etal., 2021b).
Financial support policies are important for sup-
porting small businesses and individual entrepreneurs
with the mechanisms and the extent of such support
being substantially different between OECD and non-
OECD countries. Thus, understanding the causes
and consequences of SME financing policies in the
COVID-19 era would be intriguing and pivotal for
both academic researchers and policymakers. Future
research could also examine whether and how the
institutional and development stage heterogeneities
shape the policy differences related to stakeholders,
unit of financing, and form of financing (e.g., grants,
loans, equity). In that sense, the pandemic is a natural
experiment.
A criticism of the financial support programs is
that often there was no data collected on applica-
tions for loans that were denied (Fairlie & Fossen,
2021). This is an important piece of information that
should be collected for future research on public sup-
port to small businesses and entrepreneurs to gauge
demand and unmet need for these loans, in particular
by minority businesses in developed and developing
countries. As in the case of the USA, PPP and EIDL
funds were allocated to support businesses, and it is
crucial to track who receives funding and how it helps
small businesses to become more resilient and grow
during the crisis.
During the first phase of the pandemic, massive
government support slowed firm exits. However, it
may be argued that the resources were not spent effi-
ciently and that public support mechanisms slowed
down industrial dynamics. Hence, an important chal-
lenge for the post-pandemic world is to revitalize
entry rates and stimulate technology adaption while
also encouraging the adoption of new business mod-
els that restore productivity and growth beyond pre-
crisis levels. In this context, research in industrial
dynamics may help to contribute to the existing long-
run challenges faced by modern societies such as dig-
itization, decarbonization, and sustained prosperity.
Looking ahead, government and policymakers
may want to design financial policy interventions that
dampen the impacts of the pandemic on small busi-
nesses. Future research should focus on direct poli-
cies, like zero-interest loans, subsidies, and grants.
According to Liu etal. (2021), in this special issue,
the measures should target subgroups, firms that
heavily rely on supply chains, and small businesses
without stable bank relationships.
Understanding the effects of the interplay between
liquidity support, on the one hand, and temporary
adjustments to insolvency regimes, on the other, will
provide an important lesson from the COVID-19 cri-
sis. Further research may focus on the interplay of
these two instruments as it is assumed that they may
discourage struggling firms from exiting the market.
5.4 Non-economic effects of the COVID-19
An increasing number of studies in the entrepreneur-
ship literature analyzes to what degree entrepreneurs’
mental health influences their activities. Further stud-
ies about the perception of burnout or general mental
health issues, with a focus on experiences during the
COVID-19 pandemic across more countries, indus-
tries, and fields, could expand what we know about
the response of entrepreneurs during crises and how
negative effects (e.g., burnout) could be leveraged.
COVID-19 put a large strain on entrepreneurs, who
experienced an unprecedent shock to their businesses
(Torrès et al., 2021b) Without being able to meet
physically with investors and clients, some entre-
preneurs had to scale down their businesses; others
closed their business, and solo entrepreneurs were left
more isolated than before. The COVID-19 pandemic
has likely been detrimental to the mental health of
entrepreneurs. The pandemic forced entrepreneurs to
reflect on the importance of their mental health and to
actively seek and establish coping techniques. Some
entrepreneurs experiencing failure may decide that
entrepreneurship is not for them, but we expect that
those who continue their entrepreneurial career found
ways to cope with high stress levels. For instance,
such entrepreneurs will use “time boxing” to become
more productive, meditate regularly, or use digital
tools to connect with peers. These entrepreneurs will
likely also focus more on balancing their working and
private lives by creating a working situation that suits
their social needs. In that sense, some of the entrepre-
neurs who suffered during the pandemic may come
back mentally stronger and more resilient.
The lockdown likely led to frustration, loneliness,
and worries about the future (Kritikos etal., 2020),
which are also risk factors for mental illnesses
M.Belitski et al.
1 3
(Banerjee & Rai, 2020). Future research can focus
on the impact of lockdowns and quarantine on small
businesses as well as on the link between lock-
downs, psychological effects (Brooks etal., 2020),
and entrepreneurship (Shepherd, 2020). Results of
future investigations could inspire entrepreneurs to
search for novel, more sustainable, and more social
forms of entrepreneurship, better understanding
failures and successes of small businesses. This
knowledge, which is often informal and tacit, repre-
sents a source of wealth for dealing with new forms
of crisis (both health related and economic).
Protecting and supporting the health of small
businesses and entrepreneurs during and after the
COVID-19 pandemic is essential because they have
a special role in the aftermath of crisis and in the
anticipated post-pandemic boom. This aftermath
may be predominantly dematerialized with a virtual
mode of working and new norms of working from
home. The climate and the green agenda would be
a priority. A large part of business services would
be contactless. Entrepreneurs’ health—both physi-
cal and mental—would be acknowledged and recog-
nized as vital, both by the entrepreneurs themselves
and by the policy makers.
However, given the length of school closures
and the considerable reduction in the availability of
childcare centers, the gender gap in entrepreneur-
ship, which was identified at the beginning of this
crisis, may widen in the post-pandemic period (See-
bauer etal., 2021).
In general, economic inequality between and
within nations is likely to also increase the likeli-
hood of contracting the coronavirus and dying from
it. Developing nations with weak healthcare sys-
tems and an inability to practice social distancing
also account for the unequal impact. For people of
low socio-economic status and economically disad-
vantaged people in developed countries, COVID-
19 also poses higher risks of living in overcrowded
accommodations increasing risk of illness (Patel
et al., 2020). Racial and ethnic minorities experi-
ence higher death rates from COVID-19, which has
also unequally affected urban residents and foreign
migrants around the world. With the closure of
schools, nurseries, and other childcare facilities for
all but children of essential workers (Blundell etal.,
2020), parents were typically left with the sole
responsibility for caring for their children, including
education, which particularly affected the survival
of the self-employed. How these growing inequali-
ties affect business dynamics will become an entire
field of scholarly research and, hopefully, of com-
pensating policy interventions.
Open Access This article is licensed under a Creative Com-
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original author(s) and the source, provide a link to the Crea-
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