E-commerce, Pandemic Shock, and the Survival of Small and Medium Enterprises

Abstract

This study examines the impact of e-commerce on the survival rate of small and medium enterprises (SMEs) during the COVID-19 pandemic using a combined dataset from the Enterprise Survey for Innovation and Entrepreneurship in China for the period from 2018 to 2020. We conducted a difference-in-differences analysis by exploiting the variation in the adoption of e-commerce across SMEs before and after the outbreak of COVID-19. The results show that e-commerce had a significantly positive effect on the survival rate of SMEs during the crisis. Specifically, it improved the survival rate of SMEs by 3.0 to 3.4 percentage points by expanding the scale of the enterprises' markets, mitigating declines in orders, shortening the repayment periods of accounts receivable, and improving cash flow during a pandemic. Heterogeneity analysis reveals that the impact of e-commerce was more pronounced for SMEs with a larger share of online sales and for labor-intensive SMEs, and third-party e-commerce platforms or Web sites played a bigger role than self-built Web sites and social media. This study offers novel evidence highlighting the value of digitalization for firms during the crisis.