Pandemic panic? Effects of health system capacity on firm confidence during COVID-19

We examine whether firms’ business confidence – defined as their perceptions of risk and sentiment associated with the COVID-19 pandemic – is affected by ex ante health system capacity and ex post government responses. Using firm-level data from 53 countries, we find that ex ante proactive measures, such as healthcare spending and the availability of medical staff, favorably impact firms’ confidence. This effect is, however, moderated by the COVID-19 case load. We also find that the ex post reactive measures, such as health and containment actions and the overall quality of the government response, also bolster business confidence. These effects on confidence vary by firm size and the level of development of the economy, but are largely impervious to prior epidemic experience. •Study effects of health system capacity and policy on firm confidence from COVID-19.•Strong health system capacity improves firms’ perceptions of risk and sentiment.•Public and private healthcare expenditures are more complements than substitutes.•High quality government responses also improve firms’ perceptions of risk/sentiment.•Effects greater in EMDEs vs AEs, and small firms’ sentiment affected more than large.