Research Seminar by Dr. Ritika Jain

Posted on October 22, 2021 by administrator

A research seminar by Dr. Ritika Jain was organized on 21 October 2021

Seminar Topic – Effect of COVID-19 lockdown on the profitability of firms in India

Abstract of the talk:
We examine the effect of COVID-19-induced lockdown on the profitability of listed firms in India. With restrictions on labor mobility, repressed supply, and weakened demand condition, our first hypothesis states that firms lose profitability due to lockdown. Additionally, using the role of institutions, we formulate a second hypothesis related to lockdown stringency and the pace of COVID-19 spread (in areas where the firm operates) as conditioning factors in influencing the effect of lockdown. Finally, we formulate a third hypothesis to examine the role of pre-existing firm-level factors in conditioning the impact of lockdown. We use the earliest available financial information of 4062 listed firms for the June 2020 quarter and compare their financial data with previous quarters (2017-2019). Using a difference-in-difference estimation framework and various measures of profitability, we find that the COVID-19 lockdown has reduced profits by around 15% for listed firms in India. We find evidence of firms losing revenues more than expenses, thus validating our main hypothesis. We also find that the impact is higher for firms operating in states with more stringent lockdown and in states with rapid COVID-19 spread. Finally, we find that the effects of lockdown were more severe for smaller, older firms that did not belong to any business group affirming the role of external factors and pre-existing firm-specific factors in shaping the effect of interventions on firm performance. These findings validate the three hypotheses.