Plain English SummaryGreen firms are more resilient to the COVID-19 shock, while prior credit access difficulties strongly exacerbate the pandemic's impact on businesses. Using data on firms from 20 European countries, we find that enterprises with sound environmental management practices have a lower probability of pandemic-induced reductions in sales and liquidity. Pre-pandemic financing constraints significantly impair firms' economic and financial performance and increase difficulties in accessing bank credit during the COVID-19 crisis. Our results suggest that public policies, aimed at encouraging firms' environmentally sustainable behaviours and at supporting their access to credit, may contribute to strengthen the resilience of the economic system to unexpected shocks and favour the transition to a sustainable economy. Furthermore, the awareness of the competitive advantages offered by eco-sustainable practices may represent an incentive form firms to improve their environmental management quality and increase investment in green technologies.This paper investigates the consequences of the COVID-19 crisis on firms' performance and financial vulnerability. Exploiting longitudinal firm-level data from the World Bank's "Enterprise Surveys follow-up on COVID-19" for 20 European countries, we assess whether green management quality and pre-pandemic credit access difficulties affect firms' ability to withstand the negative impact of the pandemic. Our results indicate that green firms are more resilient to the pandemic shock. In particular, the likelihood of pandemic-induced drops in sales and liquidity significantly decreases as the quality of green management improves. Conversely, prior financing constraints strongly exacerbate the pandemic's impact on firms' performance and amplify liquidity stress and financing problems. Credit-constrained enterprises are not only more likely to experience liquidity shortages and repayment problems, but they also face higher difficulties in accessing bank financing. The COVID-19 crisis has also hampered the beneficial role that green management exerted on access to credit in the pre-pandemic period. During the pandemic, firms with sound environmental management practices do not benefit from improved access to finance and have a lower demand for credit, possibly suggesting a slowdown in their green investment activities.
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