HAS COVID-19 PANDEMIC AFFECTED FIRM PROFITABILITY? DYNAMIC PANEL DATA ANALYSIS OF BIST FIRMS USING DUPONT IDENTITY COMPONENTS

Abstract

Purpose- The purpose of this study is to analyse the effects of COVID-19 pandemic on listed firms’ profitability ratios. Du Pont Identity, which relates the Return on Equity (ROE) to Total Asset Turnover (TAT), Net Profit Margin (NPM) and Equity Multiplier (EM), is a widely known tool to analyse the firms’ profitability. In this regard, the components of this identity are used in our study as variables of dynamic panel data model. Methodology- Arellano-Bond dynamic panel-data estimation is used in the study in order to take the persistence of firm profits and endogeneity of independent variables into account. Sample of the study consists manufacturing and non-manufacturing firms, except financial firms such as holdings, banks, investment trusts and etc., listed in Borsa Istanbul. Total of 153 firms, whose data can be collected fully between the 3rd quarter of 2017 and 2nd quarter of 2021, are included in the sample. Three models are tested, in which ROE, Return on Assets (ROA) and NPM are dependent variables in different models. Dummy variable (COVID), taking the value of 0 between 3rd quarter of 2017 and 1st quarter of 2020, and value of 1 between 2nd quarter of 2020 and 2nd quarter of 2021 is used to investigate the effects of COVID on ROE, ROA and NPM. Findings- Models are first tested in sample of all firms, then sample is splitted into manufacturing firms and non-manufacturing firms to be able to compare effects of COVID in different industries. According to the findings of models tested in all firms sample, dummy variable representing COVID affects ROE positively, but it has negative effects on ROA and NPM, where negative effect on NPM is higher. In sample of manufacturing firms, findings of the models show that COVID variable has negative effects on ROE and ROA, but surprisingly a positive effect on NPM. Differently in sample of non-manufacturing firms, analysis results reveal negative effect of COVID on NPM and ROA, whereas positive effect on ROE. Conclusion- Findings of the study show that COVID has affected profitability measures in a different way. Moreover, effects on manufacturing and non-manufacturing firms are also different. NPM of manufacturing firms seems to be affected positively, which may be an indicator that manufacturing firms have been managing the costs more efficiently during pandemic period. Negative effects on ROE and ROA may be the result of inefficient management of assets and equity. Models tested in sample of non-manufacturing firms reveal a negative effect of COVID on NPM. Lockdowns during the pandemic period made it difficult to manage the costs for non-manufacturing firms. Although manufacturing firms were able to continue their operations during lockdowns, it was impossible especially for service industry. However, positive effect on ROE may be the result of efficient management of equity by non-manufactoring firms during pandemic period.

Keywords

• COVID-19
• Du Pont Identity
• profitability
• dynamic panel
• Borsa Istanbul

References

1. Amnim, O. E., C.Aipma, O. P., & Fabian, C. (2021). Impact of Covid-19 Pandemic on Liquidity and Profitability of Firms in Nigeria. International Journal of Academic Research in Business and Social Sciences, 11(3), 1331-1344.
2. Ashraf, B. N. (2020). Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets. Journal of Behavioral and Experimental Finance.
3. Bulut, O. M., & Gurbuz, O. (2021). Salgın Sürecinde Kurumsal Yönetim Endeksinde Yer Alan Şirketlerin Performansı. TURAN-SAM Uluslararası Bilimsel Hakemli Dergisi, 219-233.
4. Can, O. (2021). Covid-19 Salgınının Türkiye’deki İşletmelere Etkileri: Sorunlar, Dönüşümler, Olanaklar. Ataturk Universitesi, IIBF Dergisi, 35(3), 833-863.
5. Canli, S. N., & Ozdemir, M. (2021). Determining the Financial Impacts of Covid-19 Pandemic: An Application on Turkish Airlines Industry. Third Sector Social Economic Review, 56(2), 657-681.
6. Dagli, D. (2021). Havayolu İşletmelerinin Covid-19 Öncesi ve Covid-19 Sürecindeki Finansal Performanslarının TOPSIS Yöntemi ile Değerlendirilmesi. İşletme Araştırmaları Dergisi, 13(3), 2242-2255.
7. Devi, S., Warasniasih, N. M., Masdiantini, P. R., & Musmini, L. S. (2020). The Impact of COVID-19 Pandemic on the Financial Performance of Firms on the Indonesia Stock Exchange. Journal of Economics, Business, and Accountancy Ventura, 23(2), 226-242.
8. Durak, İ., & Çömlekçi, İ. (2021). BIST100 Endeksinde Yer Alan Firmaların COVID-19 Öncesi ve COVID-19 Dönemi Finansal Verilerine Göre Sınıflandırılması: Bir Hiyerarşik Kümeleme Analizi Uygulaması. Journal of Yasar University,, 16(64), 1657-1681.

9. Gourinchas, P.-O., Kalemli-Özcan, Ṣ., Penciakova, V., & Sander, N. (2021). COVID-19 and SME Failures. Cambridge: National Bureau of Economic Research.
10. Hu, S., & Zhang, Y. (2021). COVID-19 pandemic and firm performance: Cross-country evidence. International Review of Economics & Finance, 74, 365-372.
11. Khatib, S. F., & Nour, A.-N. I. (2021). The Impact of Corporate Governance on Firm Performance During The COVID-19 Pandemic: Evidence from Malaysia. Journal of Asian Finance, Economics and Business, 8(2), 0943–0952.
12. Kilinc, F., & Calis, E. (2021). The Effect of the Covid-19 Pandemic on the Food Industry And The Relationship With Financial Performance. Research of Financial Economic and Social Studie, 6(3), 499-508.
13. Kutay, N., & Tektufekci, F. (2021). Examination of the Impact Of Covid-19 Epidemıc on Borsa Istanbul Tourism Index Enterprises’ Financial Statements And Independent Auditor’s Reports With A Holistic Approach. International Journal of Contemporary Tourism Research, Special Issue, 73-97
14. Ozcan, M. (2021). COVID 19 Pandemisinin Turizm ve Ulaştırma İşletmelerinin Finansal Performansına Etkisi. Uluslararası Toplum Araştırmaları Dergisi, 11(17), 3542-3567.
15. Song, H. J., Yeon, J., & Lee, S. (2021). Impact of the COVID-19 pandemic: Evidence from the U.S. restaurant industry. International Journal of Hospitality Management, 92.
16. Sun, T., Zhang, W.-W., Dinca, M. S., & Raza, M. (2021). Determining the impact of Covid-19 on the business norms and performance of SMEs in China. Economic Research-Ekonomska Istraživanja.
17. Yücel, S., & Durak, İ. (2021). Investigation of Financial Impacts of COVID-19 on BIST Manufacturing Sector Firms by Financial Ratios and Statistical Techniques. The Journal of Accounting and Finance, 90, 101-126.
18. ZhaominRen, XuanZhang, & ZhekaiZhang. (2021). New evidence on COVID-19 and firm performance. Economic Analysis and Policy, 72, 213- 225.