No. 107: The Covid-19 pandemic and management controls

Abstract

We examine how firms respond to the COVID-19 pandemic by adjusting their management controls and what the consequences are in terms of firms’ resilience to the crisis. We broadly review literature that deals with the influence of the COVID-19 pandemic on business and investigate results from a survey conducted within a large international multi-divisional service firm and results from the German Business Panel. We find evidence consistent with the claim that the Covid-19 pandemic is associated with a shock to transparency and increased incentive problems. We document firms’ adjustments of their management controls in response to the Covid-19 crisis: Action controls are stronger, result controls are more flexible, and cultural controls are weaker. Regarding firms’ resilience, we provide supportive evidence that more resilient firms face a smaller shock to transparency, adjust their management controls to a smaller extent, and are associated with stronger cultural controls in terms of higher organizational trust.