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Impact of financial support expansion on restaurant entries and exits during the COVID-19 pandemic

Author

Listed:
  • Masato Oikawa

    (Waseda University
    Waseda Institute of Social and Human Capital Studies (WISH))

  • Koichiro Onishi

    (Waseda University)

Abstract

This study examines the impact of an expansion of financial support to compensate for the business hour restrictions during the early COVID-19 pandemic on the entry of dine-in restaurants in the market. During this period, the local governments provided financial support to all restaurants to alleviate the urgent need for relief. This support was given regardless of their past performance, and it coincidentally provided an opportunity for new entrants that met certain criteria to receive support. Based on Japanese administrative data and a difference-in-differences estimation, our study shows that the expansion of financial support led to an increase in the number of dine-in restaurants. We also observed that the impact is more significant in areas with lower opening and operating costs, but it does not vary based on an index of potential sales. These results confirm that indiscriminate reduction of entry barriers could lead to the entry of less profitable and marginal new firms. Moreover, financial support led to a decrease in restaurant exits, especially of low-productive ones.

Suggested Citation

  • Masato Oikawa & Koichiro Onishi, 2025. "Impact of financial support expansion on restaurant entries and exits during the COVID-19 pandemic," Small Business Economics, Springer, vol. 64(2), pages 645-689, February.
    • Handle: RePEc:kap:sbusec:v:64:y:2025:i:2:d:10.1007_s11187-024-00912-4
    DOI: 10.1007/s11187-024-00912-4
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    More about this item

    Keywords

    COVID-19; Entry and exit; Government support; Support during recession; Restaurant industry;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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