Effect ofCOVID‐19 Lockdown on the Profitability of Firms in India*

Abstract

We examine the effect of COVID-19-induced lockdown on the profitability of listed firms in India. We use quarterly income statement of 4168 listed firms for the period between April-June 2020 quarter and April-June 2022 quarter and compare their financial data with previous quarters (2015)(2016)(2017)(2018)(2019). Using a difference-in-difference estimation framework and various profitability measures, we find that the COVID-19 lockdown has reduced profits by around 15 per cent for listed firms in India. Our results are robust to various robustness tests and alternate specifications. We find evidence of firms losing revenues more than expenses, thus leading to decline in profits. The main effect is conditioned by firm-specific factors. Specifically, firms that are smaller, older, unlisted and that do not belong to any group witnessed larger decline in profitability due to lockdown. Additionally, the effect of lockdown is more pronounced in areas that had lower mobility and higher COVID-19 spread. These results underscore the importance of institutional factors and pre-existing firm characteristics in conditioning the impact of lockdown on firm profitability.

COVID‐19 retreats and world recovers: A silver lining in the dark cloud

“…Rural consumer growth at zero, employment at a 40‐year high, and no progress in the manufacturing sector all contribute to a stagnant economy. Hence, a shutdown would have halted industrial production, leading to an economic collapse [ 140 ]. The government of India and the Reserve Bank of India's combined efforts will help in changing the current economic scenario and boosting market growth [ 139 ].…”