1Additional evidence of business shutdowns early in the pandemic is provided, for example, from the weekly U.S. Census Small Business Pulse Survey which indicates that roughly 50 percent of businesses report having a large negative effect from the COVID-19 pandemic (U.S. Census Bureau, 2020; Bohn et al., 2020). Bartik et al. (2020) conducted a survey in late March of nearly 6000 small businesses that were members of the Alignable Business Network. They find that 43% of businesses are temporarily closed, large reductions in employees, and that the majority of businesses have less than one month of cash on hand.
2Just prior to the pandemic when small business owners were asked what actions they would take if faced with a two-month revenue loss roughly half said they would use their own funds and 17% said they would close or sell the business (Mills et al., 2020).
3In line with this, based on an online survey conducted in April and May 2020, Block et al. (2021) report that the more severe the COVID-19 crisis was for entrepreneurial ventures in Germany, the more they resorted to bootstrap financing. Small entrepreneurial businesses may also depend more than larger firms on relational finance with face-to-face interaction, further impeding their access to financing during the pandemic. Brown and Rocha (2020) and Brown et al. (2020) provide evidence in this direction using real-time data on funding transactions from Crunchbase for China and the United Kingdom, respectively.
4See https://tracktherecovery.org/. Womply aggregates data from several credit card processors to analyze for small businesses. The data are distributed across sectors for which credit card use is common and focus on small businesses, thus comprising a larger share of food services, professional services, and other services.
5The findings also contribute to the broader literature on the general relationship between recessions and entrepreneurship. The evidence is surprisingly mixed with many previous studies showing positive relationships, negative relationships, and zero relationships (Parker, 2018).
6For example, Graeber et al. (2021) analyze a survey of 339 self-employed persons and 3583 employees between April and July 2020 in Germany, and Thorgren and Williams (2020) use a sample of 456 SMEs from March 2020 in the Swedish region of Norrbotten.
7On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a pandemic. On March 16, the San Francisco Bay Area imposed the first shelter-in-place restrictions in the country followed by the State of California on March 19. New York State followed the next day. By early April most states imposed social distancing restrictions.
8Note that most grocery items are exempt from sales tax in California. Taxable items include hot prepared food products, carbonated beverages, effervescent bottled water, wine, and spirits, for example.
9County population numbers are from the U.S. Census Bureau.
10Weighting the regression by the population size of the counties does not change the picture (see Figure B1 in Appendix B), the slope coefficient (std. err.) becomes −36.77 (0.0148).
11We classify food and beverage stores into the high person-to-person contact category due to the often comparably high density of customers and employees in and around these stores. Keep in mind that most grocery items are exempt from sales tax in California, see footnote 8.
12Appendix Figure B2 additionally contains a plot for gasoline stations, a second business type in the group of essential businesses with moderate person-to-person interaction.
13Gasoline stations, which were also essential and have a medium level of person-to-person interaction like building material and gardening stores, exhibit a similar slope coefficient (std. err.) of −41.99 (17.38), see Figure B2 in Appendix B. However, there is a large level difference, with gasoline stations suffering large declines in sales on average, presumably due to lower demand for gasoline as people worked from home.
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