INTRODUCTION AND INTERNATIONAL CONTEXT

Firms differ systematically by size, and these differences shape how aggregate shocks propagate through the corporate sector. Large and small firms vary in their production technologies, cost structures, financing options, and ability to absorb adverse shocks. These differences become particularly important during periods of macroeconomic stress, when constraints on liquidity, access to finance, and cost flexibility can translate into sharply divergent performance outcomes.

The COVID-19 pandemic represents an unprecedented global shock that simultaneously disrupted demand, supply chains, and firm operations. While the pandemic affected nearly all sectors, a growing body of international evidence shows that its economic impact was highly uneven across firms, with size playing a critical role in shaping both vulnerability and recovery dynamics. 

Using firm-level accounting data from a large cross-country sample, Athira et al. (2024) show that profitability measures, including return on assets, deteriorated significantly during the shock, while firms’ balance-sheet positions adjusted more gradually. The magnitude of the impact depended on firms’ pre-crisis financial strength, particularly liquidity and leverage, highlighting the role of balance-sheet resilience in shaping recovery dynamics. The role of firm size in shaping these outcomes is important. Evidence from developing and emerging economies indicates that small and medium-sized firms were more severely affected during the pandemic, experiencing larger sales declines and greater liquidity stress due to tighter financial constraints and more limited access to external finance (Amin et al., 2023). By contrast, cross-country evidence covering both advanced and emerging economies indicates that large firms did not uniformly outperform small firms during the pandemic. Franco et al. (2023) show that, conditional on country and sector, large firms often experienced revenue contractions comparable to or larger than those of small firms, particularly in sectors directly affected by mobility restrictions. These findings suggest that sectoral exposure and cost rigidity, rather than size alone, played a crucial role in determining short-term performance during the crisis.

Overall, the international evidence suggests that COVID-19 acted less as a uniform shock and more as an amplifier of pre-existing structural differences across firms. Profitability, leverage, and liquidity responded differently depending on firm size and sectoral exposure. Importantly, several studies emphasize that post-COVID recovery trajectories are shaped not only by short-term shock absorption, but also by firms’ capacity to rebuild profitability and internal financing over time.

Against this background, this research note examines firm-level financial performance in Georgia before, during, and after the COVID-19 shock, using comprehensive financial statement data covering the full distribution of firm sizes. By analyzing dynamics of indicators of profitability and efficiency, capital structure and internal financing capacity, and liquidity, the study documents differences in both the immediate impact of the shock and subsequent adjustment paths by firm size. In particular, the Georgian case offers insight into how size-based heterogeneity interacts with sectoral exposure, financial constraints, and post-crisis adjustment mechanisms in the aftermath of a global shock.

For the complete note, please refer to the attached report (above).