Effect of COVID-19 on the Financial Performance of Indian Public Family Firms.

AuthorBallal, Juili


The first official case of COVID-19 was reported in Wuhan, China, on December 31, 2019. Since then, COVID-19 has impacted millions of human lives the world over and had severe economic impacts (Rababah et al., 2020). Research studies in the context of the economic and financial impacts of COVID-19 so far have mainly focused on the macro-levels of the economy (Apergis & Apergis, 2020; Gil-Alana & Monge, 2020; Goswami et al., 2021; Njindan Iyke, 2020). Rather than studying the macro-level impacts, we focused on the financial performance of the Indian public companies. Secondly, we undertake a comparative analysis of family and non-family firms to understand which of them dealt with the pandemic better.

India is considered the most affected developing economy from the first wave of the pandemic (Jose et al., 2021). The Indian Ministry of Statistics, on September 1, 2020, released the GDP figures for Q1 (April to June) FY21, which indicated a 24 percent fall compared to Q1FY20. During the same period, the world GDP shrank by 7.2 percent. (1) The Indian stock markets also experienced a significant setback just after COVID-19 was declared a global pandemic by the WHO on March 11, 2020. Sensex and Nifty tanked by 9 percent each intra-day and recorded their biggest one-day fall in absolute terms. (2)

The reaction of the markets to COVID-19 (Alam, Alam & Chavali, 2020; Alam, Wei & Wahid, 2020; Anh & Gan, 2020; Chaudhary, Bakhshi & Gupta, 2020; Cui, Kent, Kim & Li, 2021; Erdem, 2020; Insaidoo, Arthur, Amoako & Andoh, 2021; Lin & Falk, 2021; Liu, Wang & Lee, 2020; Liu, Yi & Yin, 2021; Narayan, 2020; Takyi & Bentum-Ennin, 2021), coping strategy to deal with the pandemic (Nguyen, Ngo & Tran, 2021) and its effect on financial performance (Rababah et al., 2020; Shen, Fu, Pan, Yu & Chen, 2020; Zheng, 2021) have been studied separately in the literature.

In India, the impact of COVID-19 on MSMEs has been studied, mainly focusing on their imports and exports (Bhasin & Kumar, 2021). Alam, Alam, Alam, & Chavali (2020) and Rao et al. (2021) analyzed the pandemic effect on stock market performance. However, there has been no study that examines the effect of COVID-19 on the financial performance of publicly-traded Indian companies, with a focus on family firms. Family business is the most prevalent form of business organization worldwide (Poutziouris, 2004). In India too family firms are leading business enterprises (Mittal & Lavina, 2018) since most businesses are family-controlled (Mondal & Chakraborti, 2020). India boasts a long history of family and community-based firms (Chittoor & Aulakh, 2015). These firms have a tremendous impact on the national employment, gross national product, and wealth creation (Mondal & Chakraborti, 2020). Family businesses contribute to around 79% of India's GDP (3). Given the importance of family firms in India, this paper investigates the impact of COVID-19 on their financial performance.

The contributions of our research are as follows. First, this study contributes to the existing literature on the effect of COVID-19 on the financial performance of public companies. Second, it undertakes a comparative performance analysis of family and non-family firms to see which type of business organization coped well with the pandemic. Our findings reveal that the Indian public companies performed better in the post-pandemic year than in the pre-pandemic period. It was observed that family firms outperformed their non-family counterparts among the companies.

Literature Review & Hypotheses Development

COVID-19 has had a severe impact on different countries worldwide, not only in terms of deaths but also in terms of economic decline. Several companies have gone bankrupt due to a lack of economic activities resulting from strict lockdown (Tucker, 2020). Many studies have examined the effect of COVID-19 on the financial performance of public companies. ROA and ROE are the common financial performance metrics used in these studies. Table 1 presents the empirical studies on COVID-19 and the financial performance of listed companies.

Fu and Shen (2020) investigated the effect of COVID-19 on the corporate performance of Chinese energy companies. They found an adverse effect on the performance of these companies. There was a decline in the industry performance in the first quarter of 2020. COVID-19 negatively affected productivity, which resulted in dwindling revenues. The companies also failed to cover the fixed cost, leading to poor corporate performance. Additionally, the pandemic also negatively affected the goodwill impairment of the companies.

Shen et al. (2020) studied the impact of COVID-19 on the corporate performance of Chinese listed companies. They found that COVID-19 hurt firm performance. The negative impact of COVID-19 on firm performance was more pronounced when a firm's investment scale

or sales revenue was smaller. Additionally, they observed that the negative impact of COVID-19 on firm performance was more pronounced in serious-impact areas and industries.

Rababah et al. (2020) also looked at the corporate performance of the Chinese listed companies, but they studied the pre and post effects of COVID-19. They found that the small- and medium-sized companies were the most affected. Moreover, they reveal that serious impact areas and industries which were worst-hit by COVID-19 experienced a sharper decline in financial performance compared to other industries.

There are certain commonalities among the previous three studies. First, they use ROA and ROE to measure the firm performance. Second, they use the same DID (difference-in-difference) modeling method to posit their findings. Third, they undertake their studies among the Chinese companies.

In a different study, Hu and Zhang (2021) undertook a cross-country comparison to examine the pandemic effect of COVID-19 on firm performance. Using financial data of 16,148 firms across 107 countries/economies, they found that firm performance deteriorates during the COVID-19 pandemic. The adverse effects of COVID-19 on firm performance are less pronounced in countries with better healthcare systems, more advanced financial systems, and better institutions.

In another cross-country study, Atayah et al. (2021) investigated the relationship between the financial performance of listed logistics firms in G20 countries and COVID-19. They observed that the financial performance of logistic firms was significantly higher during 2020. Overall, the country-wise findings corroborated with the main results, and the financial performance of 14 countries' logistic firms out of 20 analyzed has been significantly elevated during the pandemic. However, there was a negative financial performance of the logistics firms during the COVID-19 period in six countries (Germany, Korea, Russia, Mexico, Saudi Arabia, and the UK).

Based on the literature, we hypothesize,

H1: Indian public companies experienced an improvement in financial performance post-pandemic.

Family Firms' Financial Performance

The available studies investigating the family firms during COVID-19 have adopted a qualitative methodology, with one quantitative study in the Italian context. There are studies on the effect of COVID-19 on corporate social responsibility (Rivo- Lopez, Villanueva-Villar, Michael-Alvarez & Reyes-Santias, 2021), market practice (Hermawan, Raedianty, Syahlan &Maharani, 2020), family firms' resilience to cope with the pandemic (Gonzalez & Perez-Uribe, 2021), family firms' ability to preserve socioemotional wealth (Firfiray & Gomez-Mejia, 2021), family firms' ability to cope with the crisis (Kraus et al., 2020). In addition, theoretical works put forth the research questions that can arise after the pandemic in the family business context (De Massis & Rondi, 2020).

Amore et al. (2021) undertook a comparative study to analyze the performance of publicly-traded family and nonfamily firms in Italy. They studied how...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT