International connectedness, governmental interventions and firms’ adaptation to exogenous shocks: evidence from the COVID-19 pandemic

Purpose: Knowledge on how firms adapt to exogenous shocks remains scant. This study examines whether internationally connected firms (i.e. firms that rely on exporting, global value chains and foreign ownership) are less likely to adjust their production in response to a major exogenous shock. Moreover, this study investigates if governmental policy interventions affect more internationally connected firms than domestically focused counterparts. Design/methodology/approach: This study uses data on more than 13,000 firms from 41 countries worldwide from the World Bank’s Enterprise Surveys, taking advantage of the recent COVID-19 pandemic as a quasi-experimental setting for research. Findings: The results show that export-intensive and foreign-owned firms are less likely to adjust their production in response to the pandemic. Moreover, national governmental policies (in the form of confinement stringency and economic stimuli) seem to affect equally all firms in terms of their ability to adapt to the pandemic. Finally, the economic magnitude of these national policies dwarfs those of firms’ international strategies, confirming the paramount role played by governments worldwide in response to major exogenous shocks. Originality/value: This study examines empirically whether internationally connected firms are more or less affected by a major global crisis (in this case the COVID-19 pandemic) and whether national policies in response to the crisis favor domestic firms.