Who pays for the COVID-19 pandemic? Pass-through of revenue declines to Stakeholders’ incomes

Abstract This study investigates how German firms affected by the COVID-19 pandemic plan to pass on crisis-related costs to their stakeholders. Using a unique firm-level dataset, we analyze survey responses on planned pay cuts across four groups: shareholders, executives, middle managers, and other employees. The data provides detailed insights into whether and to what extent firms are impacted by the pandemic. Our findings show that affected firms plan reductions in payments for all stakeholder groups, resulting in lower dividends or smaller future compensation increases. Firms affected by the crisis are approximately 20.6–24.4 percentage points more likely to plan such reductions, with stronger effects observed in firms experiencing greater levels of impact. Additionally, we find evidence of heterogeneity: larger firms with more employees are more likely to implement planned pay cuts. Furthermore, our analysis suggests that when firms plan to reduce payments for multiple groups, they tend to pass costs onto those who are closely related within the organizational hierarchy. To address potential endogeneity in managerial skills, we apply an instrumental variable (IV) approach and conduct several robustness checks, which confirm our results.