Managers react almost exclusively to domestic policy measures – sentiment about expected duration of pandemic influences firms’ crisis response actions
In a paper ("Sudden stop: When did firms anticipate the potential consequences of COVID-19?", published in German Economic Review), Lukas Buchheim and co-authors show that managers of German firms did not anticipate the severe restrictions of the Corona pandemic on their business situation until after the adoption of domestic policy measures against the pandemic (especially school closures). Prior restrictions in China had little effect on expectations, while restrictions in Italy had small effects on expected business conditions. These results show that even in a global pandemic, economic expectations are strongly driven by local developments.
In another paper, Lukas Buchheim and coauthors show that managers' gut feelings (“sentiment”) about the expected length of COVID-19 induced shutdowns had a crucial impact on business decisions ("Sentiment and firm behavior during the COVID-19 pandemic," Journal of Economic Behavior and Organization): Firms with managers who expected restrictions of more than four months at the onset of the pandemic were more likely to implement strong measures, e.g., layoffs or restrictions on investments, than firms with a more optimistic outlook.