Is the German Mittelstand more resistant to crises? Empirical evidence from the Great Recession

In a globalized world with high international factor mobility, crises often spread quickly over large parts of the world. Politicians carry a vital interest in keeping crises as small and short as possible. Against this background we study whether the type of company of owner-managed SMEs, in Germany well-known as Mittelstand firms, helps increasing an economy's crisis resistance. We study this issue at the example of the Great Recession of the years 2008/2009. Using micro panel data from the ifo Business Survey, we study the comparative performance of Mittelstand enterprises and find supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm size and owner-management that leads to more crisis resistance. Plain English Summary The German Mittelstand is economically more successful compared to SMEs and large enterprises because of its combination of owner-management and firm size. The German Mittelstand is always seen as the "backbone" of the German economy and made responsible for Germany's ability to cope with large external shocks such as the 2008/2009 global recession. To date, this suggestion is not backed by empirical evidence as common data sources do not incorporate information on the ownership structure of German firms. We enrich the micro panel data from the largest monthly business survey in Germany by two questions on the ownership structure of the interviewed firm and can confirm this suggestion. It turns out that it is not firm size or owner-management alone that leads to a higher crisis resistance but rather the combination of both criteria. Our results have practical and political implications as it is possible with our approach to separate the German Mittelstand from the pool of small- and medium-sized enterprises. The information on the ownership structure in our data can initiate future research activities and shed more light on the relevance of owner-management for the economic success of firms.