Impact of Covid-19 on firms’ performance: Empirical evidence from India

The current study aims to examine the impact of the pandemic (Covid-19) on the financial performance of some of the selected Indian sectors. The study targets all Indian firms listed on the Bombay stock exchange, which belong to the following sectors (Constructing, tourism and hospitality, food and consumer sectors). The study extracted data of 444 firms from the Prowess database for four sectors. Due to some missing values, the study dropped 73 firms. Therefore, the final sample of this study consists of 371 firms. Results revealed a significant difference in total income, net sales, net profit, earnings per share, and diluted earnings per share before and after the pandemic in tourism, hospitality, and consumer sectors. The result of the study states that there is a significant difference in total income net sales before and after the pandemic in construction. There is a difference in the decline in both sectors’ net sales and total income during the pandemic. Conversely, there is no significant difference between net profit, earnings per share, diluted earnings per share before and after the pandemic in constructing and food sectors. Results of the study state that the food sector was not affected by the pandemic, whereas the construction sector reduced its expenses to their minimum. The study also found that the tourism, hospitality and customer sectors were the most effected by the Covid-19 pandemic, followed by the construction sector and food sector, which was a minor sector affected by the pandemic. Most of the prior research on Covid-19 is theoretical, and only a few have conducted an empirical investigation. The study is unique as it evaluates the financial performance of Indian firms before and after the Covid-19 pandemic, which has not been studied yet in the Indian context. Further, this study provides valuable insights to regulators and policymakers about the most affected sectors due to the pandemic by analysing Indian sectors.

1. Introductions

On 31 December 2019, China Health Authority alerted the World Health Organization (WHO) about many cases of pneumonia of unknown etiology in Wuhan City, China (Harapan et al., 2020; Mohan & Nambiar, 2020). On 7 January 2020, the news was virus isolated and named as a temporary 2019 novel coronavirus (2019-nCoV) by the WHO (Lin et al., 2021; Spiteri et al., 2020) and identified from the throat swab sample of a patient with viral pneumonia in Wuhan, China (Harapan et al., 2020; Lin et al., 2021; Sofi et al., 2020). On 11 January 2020, China announced the first death from 2019-nCoV (Lin et al., 2021) and on the same day, the WHO declared 2019-nCoV to be a Public Health Emergency of International Concern, highly contagious, caused infections in large scale and proved difficult to contain (Shen et al., 2020).

The outbreak was a significant public health risk since it spread rapidly, resulting in widespread illness that overwhelmed health systems and proved difficult to contain (Wu et al., 2021). On 30 January 2020, the WHO declared the SARS-COV-2 outbreak a Public Health Emergency of International Concern (Harapan et al., 2020). Efficiently halt the spread of the virus and safeguard public health, most countries implemented strict lockdown measures. According to Jahangir et al. (2020) and Liu et al. (2020), two coronaviruses transmitted from animals in the past two decades, namely, severe acute respiratory syndrome SARS-COV and Middle East respiratory syndrome MERS-COV. These viruses caused severe pneumonia and high fatality rates. Thus, Jahangir et al. (2020) suggests that pasts lessons learned in dealing with such diseases in stemming and eradicating infections should come in handy. The outbreak is still ongoing, posing an immense threat to global public health and economies. Thus, this study is motivated to investigate the impact of Covid-19 pandemic and how it affected the performance of Indian firms which has not been investigated yet due to non-availability of data. The authors have extracted the financial data from ProwessIQ database to examine the impact of the imposed lockdown on the performance of Indian companies.

Financial performance is the primary criterion used by investors worldwide, as the world has become smaller in the sense that enterprises may be conducted everywhere (Al-ahdal & Hashim, 2021; Al-Matari et al., 2014; Yahya et al., 2017). The performance management process is how a company runs its actions with the help of its corporate objectives and functional strategies (Bititci et al., 1997). The improvement procedure is required to identify at all the levels to which using organizational resources could impact business performance (Sharma & Gadenne, 2002). Performance measurement offers critical input that enables management to monitor performance, progress, motivation, communication, and issue diagnosis.

For India, the first and second waves occur around five months apart. The first wave peaked in September 2020; daily cases totalling roughly 0.1 million. Daily instances declined until mid-February when they began to climb rapidly. On 15 April 2021, the number of new cases was around 0.2 million, more than quadrupling the previous peak amount. COVID-19 cases and fatalities have seen a dramatic increase in India. On 15 April 2021, the number of new cases was around 0.2 million, more than quadrupling the previous peak amount. COVID-19 has dealt a severe blow to India’s economy in general and macroeconomic impact on every sector (Kar et al., 2021). The economy was already in a precarious state before the breakout of covid-19; with the suspension of economic activity and state-wide lockdown, the economy expected to experience a lengthy period of slowing. According to a recent Hindustan Times report, covid 19 affects 70% of the banking sector’s debt. It has impacted 19 industries with a combined debt of 15.5 lakh crore that was not stressed prior to the outbreak (Kumar & Kumar, 2021).

There is an immediate need to determine the impact of the pandemic (Covid-19) on the financial performance of some Indian sectors. Due to the data scarcity, the authors were confined to four sectors which are Construction, Tourism and hospitality, Food and Consumer sectors. The study aims to get an in-depth insight into measuring the present effect of the COVID-19 pandemic and identifying crucial short- and long-term response options. As such, this study aims to assist manufacturing and service organizations in managing similar disruptions (i.e. COVID-19) by addressing the following research question: What is the impact of pandemic (Covid-19) on the financial performance of some Indian sectors?

In answering this research question, we collated the data for the fourth quarter of 2019 and the first quarter of 2020 for the selected firms. Results revealed a significant difference in total income, net sales, earnings per share, net profit, and diluted earnings per share before and after the pandemic in tourism, hospitality, and consumer sectors. There is a significant difference in total income net sales before and after the pandemic in constructing and food sectors.

The paper contributes to the existing literature in the following ways. Firstly, to the best of researchers’ knowledge, this might be the first study that examines the impact of COVID-19 on firms’ performance in Indian Context. Secondly, this research is making a comparative study between more likely affected sectors, e.g., tourism and hospitality sector and less likely affected sectors, e.g., Food sector. Thirdly, this paper enriches the literature measuring the impact of major public health emergencies on Indian economy. Fourthly, this paper also proposes an empirical method to evaluate the impact of the pandemic on firm performance of Indian Constructing, tourism, hospitality, food and consumer sectors. Finally, the results presented in the paper have important policy implications as the central governments try to fight the pandemic and to support the economy recover from the downturn. The paper is divided into five parts introduction, literature review, research methodology, findings and discussions, and conclusion.

2. Theoretical analysis and research hypotheses

The pandemic’s rapid spread profoundly affected economies and financial markets worldwide (Chen & Chia-Wei, 2021). The entire world was forced to confront the COVID-19 pandemic, which inevitably resulted in significant upheavals in all spheres, from economics to social (Chen & Chia-Wei, 2021; Piccarozzi et al., 2021). Across the globe, businesses have been impacted by the COVID-19 epidemic, affecting practically every business sector and industry (Islam et al., 2020; Xu et al., 2021). Lockdown and social distancing restrictions are used as part of policies and efforts to control the ongoing COVID-19 pandemic (Cheval et al., 2020; Zhao & Feng, 2020).

According to Trueman’s theory, investors decide a firm’s worth based on their assessment of adaptability of managements to the economic environment in which it works (Trueman, 1986). Additionally, investors want substantial announcement of Covid-19-related information and how Covid-19 has impacted enterprises from a stakeholder viewpoint (Elmarzouky et al., 2021). Khatib and Nour (2021) found that the COVID-19 pandemic has significantly impacted business characteristics, such as performance, governance structure, liquidity, and leverage level. Nevertheless, the difference between previous and post-pandemic times is insignificant. Another study by Ahmed (2020) analysed the influence of COVID-19 on Pakistani stock market performance. The study used data on positive cases, fatalities, and recoveries associated with COVID-19.

Additionally, data of the first-half 2020 closing values of the PSX 100 index prices was utilized. The study’s findings indicated that only COVID-19 recoveries affect the index’s performance, while daily positive cases and fatalities have a negligible effect. Additional research can be conducted at the cross-country level by including additional variables such as economic growth, interest rates, and inflation rates in addition to the COVID-19-related factors.

Shen et al. (2020) studied the impact of COVID-19 on the corporate performance of listed Chinese companies. Results depicted that COVID-19 distorts effect on firm performance. D’Orazio and Dirks (2020) proved that introducing COVID-19-related policies from 1 January 2020 to 17 May 2020 in the Euro Area had a considerable negative influence on stock markets. Movements in Google trends, bond yields, EU volatility index and infection rates indicate a detrimental influence. Fiscal policy announcements had a negligible effect, whereas health initiatives had a large one. Fu and Shen (2020) investigated the influence on the energy industry that COVID-19 had on corporate performance and found that COVID-19 has had a considerable detrimental influence on the performance of energy businesses. Goodwill impairment was introduced as a moderating variable, the pandemic affected companies experiencing goodwill impairment more substantially. So, decision-makers at all levels should pay closer attention to the impact of COVID-19 on energy firms and implement counter measures to limit the consequences on the energy industry. Islam et al. (2020) discovered a sizeable association between entrepreneurial self-efficacy, financial performance, and entrepreneurial resilience of small and medium-sized businesses. Moreover, the study discovered a substantial moderating effect of innovative work behaviour on the connection between financial performance and entrepreneurial efficacy.

Moreover, Rababah et al. (2020) discovered that small and medium-sized businesses were the most brutal hit or affected by this pandemic. Furthermore, their results demonstrated that serious-impact locations and industries hardest affected by COVID-19 experienced a more severe loss in financial performance than other industries. The study’s conclusion presented significant policy implications, as banks, regulatory agencies central banks and governments must work cooperatively to address the financial and economic consequences of COVID-19 problems. Shen et al. (2020) examined the effects of COVID-19 on company performance using financial data from publicly traded Chinese enterprises. It demonstrates that COVID-19 had a detrimental effect on company performance. COVID-19 posed a more substantial detrimental effect on firm performance when a firm’s investment scale or sales income is less.

Zou & li (2020) discovered that the COVID-19 pandemic had impacted virtually every aspect of the global economy and society. The study examined enterprises in Guangdong Province to ascertain the pandemic’s impact on them and to suggest public strategies to mitigate the negative impacts. Businesses in Guangdong Province have encountered significant hurdles due to the outbreak. Their manufacturing and operations are curtailed, and they face substantial dangers. It is vital to enact regulations that significantly reduce enterprises’ production costs, allowing them to weather this difficult phase and gradually resume normal operations. Xu et al. (2021) found that the epidemic’s severity has a significant negative effect on import and export cargo throughputs; further, the impact of the pandemic on import is more significant than export.

In Indian context, Dash et al. (2021) found that fatalities from communicable diseases have negatively impacted the Indian aviation market. Inline, Kumar Das and Patnaik (2020) found that various industries such as telecom, tourism and aviation, auto sector and transportation are the most impacted sectors facing negative backlash of the present disaster. Existing studies analysed the connection between COVID-19 and economic performances (Debata et al., 2020; Goswami et al., 2021). In contrast, no studies analysed the impact of COVID-19 on the performance of public companies of various sectors in India. Based on this above discussion, we proposed the following research hypothesis:

H01: COVID-19 has a negative impact on the performance of Indian listed companies.

H01a: COVID-19 has a negative impact on the total income of Indian listed companies.

H01b: COVID-19 has a negative impact on the net sales of Indian listed companies.

H01c: COVID-19 has a negative impact on the net profit of Indian listed companies.

H01d: COVID-19 has a negative impact on the earnings per share of Indian listed companies.

H01e: COVID-19 has a negative impact on the diluted earnings per share of Indian listed companies.

Based on the above discussion, it is found that this is the first study on COVID-19 and its impact on firm performance in different industries sectors using secondary data. Further, this article contributes to the body of knowledge about the economic effect of significant public health emergencies in India. It also proposes an empirical method to evaluate the impact of the pandemic on firm performance of Indian Constructing, tourism, hospitality, food and consumer sectors. The findings in this article have significant policy implications as the central government’s attempt to contain the epidemic and aid the economy’s recovery from the slump.

5. Conclusion

The study aims to examine the impact of the pandemic (Covid-19) on the financial performance of some Indian sectors. The study has targeted all Indian firms listed on the Bombay stock exchange, which belong to the following sectors (constructing, tourism and hospitality, food and consumer sectors). Financial performance is measured by total income, net sales, net profit, and diluted earnings per share. The study is on secondary data; data collated for the fourth quarter of 2019, i.e., 01/01/2020–31/03/2020 and the first quarter of 2020, i.e., 01/04/2020-30/06/2020. 2019 Fourth quarter is considered the pre-COVID-19 period, lockdown implemented from 15/03/2020, and the first quarter of 2020 is considered the post-COVID-19 period. Results revealed a significant difference in Total income, net sales, net profit, earnings per share, and Diluted earnings per share before and after the pandemic in tourism, hospitality, and consumer sectors. It is constituted that there is a significant difference in total income net sales before and after the pandemic in constructing and food sectors. This difference results from declining both sectors’ net sales and total income during the pandemic.

On the contrary, there is no significant difference between net profit, earnings per share, diluted earnings per share before and after the pandemic in constructing and food sectors. These results could be explained because the food sector was not affected by the pandemic and the construction sector reduced its expenses to their minimum. The study also revealed that tourism, hospitality, and customer sectors were the most affected by the Covid-19 pandemic, followed by the construction sector and food sector, the last sector affected by the pandemic.

This work is of three-fold contributions:

  1. It bridges an existing gap in the literature by empirically evaluating the effect of the Covid-19 pandemic on the performance of Indian firms (in light of different sectors), which has not yet been investigated as most of the literature on Covid-19 is theoretical.

  2. This study provides valuable insights to regulators and policymakers about the most affected sectors due to the pandemic by analysing Indian sectors.

  3. The study provides helpful directions for academicians and researchers to include in future research.

This study, like other studies, has several limitations that must be considered while reading the findings, which paves the way for future directions. For instance, the study is limited to profitability measures of firms’ performance. Therefore, future researchers could take leverage and turnover ratios. Further, due to data availability, this study is limited to firms that belong to the tourism and hospitality, food, consumer, and construction sectors. Thus, future research could take another sector like the telecommunication and aviation sector as an example. Finally, because of the non-availability of data, the study could not get the latest data. Hence, researchers are encouraged to provide findings on updated data for 2021. Despite these, our findings have an important theoretical and practical implication on the impact of COVID-19ʹs on Indian firms’ performance.

The COVID-19 pandemic in India has forced corporate leaders and owners to mobilize quickly and make quick decisions. A decision like reducing industrial output or even temporarily shutting down operations could have long-term consequences that were not anticipated. As a result of the government’s lockdown policy or order, this would influence firms’ financial performance. Furthermore, businesses should always have a scalable and effective emergency plan and be ready for the unexpected. Further, the business must learn many things from this pandemic to tackle such things if they happen in the future.

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