The study examines 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 conditions, we hypothesize that firms lose profitability due to lockdown. We also explore the role of external factors such as lockdown stringency and pace of COVID-19 spread (in areas where the firm operates) as conditioning factors in influencing the effect of lockdown. We use the earliest available financial information of 4062 listed firms for the quarter ending in June 2020 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, the effects of lockdown were more severe for smaller, older and 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.
About the Speaker:
Dr. Ritika Jain is a faculty at Centre for Development Studies, Trivandrum. She received her Ph.D. and M.Sc. from Indira Gandhi Institute of Development Research (IGIDR), Mumbai. Her areas of specialisation include Politics and development, Industry and trade, Innovation and technology, Labour, employment and social security. She publishes extensively in international and national journals such as Economic Systems, Journal of Asian Economics, Energy Policy, Energy Economics, Journal of Economics, Public Finance Review and Economic and Political Weekly. Dr. Jain is also a regular contributor to Ideas for India. Her recent paper “Behaviour of Securities Markets- Sighting of Black Swan” was awarded one of the best papers at SEBI-NISM Research Conference 2021.