Current Issues in Economics and Finance

Why Small Businesses Were Hit Harder by the Recent Recession

Volume 17, Number 42011
JEL classification: E24,J21

Authors: Ayşegül Şahin, Sagiri Kitao, Anna Cororaton, and Sergiu Laiu

Although both large and small businesses felt the sting of job losses during the 2007-09 downturn, small firms experienced disproportionate declines. A study of the recession’s employment effect on small firms suggests that poor sales and economic uncertainty were the main reasons for their weak performance and sluggish recovery—problems that affected large firms too, but to a lesser degree. Although a tightened credit supply constrained some small firms, weak consumer demand for the firms’ products and services was a more pressing factor, reducing revenues and dampening new investment spending.

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