Firms’ solidity before an exogenous shock: Covid-19 pandemic in Italy

In this paper we study the structural robustness of the Italian business system, using the Covid-19 pandemic as an exogenous event to test it. To this aim, we use the ROC (Receiver Operating Characteristics) methodology, quite new for economics, to classify Italian firms according to their economic solidity, obtaining a taxonomy based on a wide set of characteristics. Our results show that the number of "Solid" firms is less than one-fifth of all Italian enterprises but they represent the lion's share in terms of employment and value added. "Fragile" and "At Risk" firms, albeit much less relevant for the creation of value added, account for over one-third of total employment, so they may be a worrisome issue for policymakers. Solidity conditions have clearly both a size and sector-related dimension: At Risk and Fragile conditions prevail among firms of smaller economic size (a broad definition of firm size) and among those operating in Construction and Other services. Finally, we find that factors such as firms' performance, and internal and external organization, although significant, play a less relevant role than economic size and digitalization/innovation in determining Italian firms' resilience to exogenous shocks such as the Covid-19 one.