2016

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

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,

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