Keywords

1 Background of Research

The outbreak of the coronavirus (COVID-19) seriously affected health care, economy, transportation, and other fields in different sectors and regions. As a result of the quarantine policy population mobility sharply decreased, which led to weakened spending power and a stagnant economy. At the macro level, the COVID-19 outbreak provoked a major economic recession in 2020. Recent studies have investigated stock markets’ reaction to pandemic [1]. It appears that significant negative abnormal returns prevailed at the initial stages of the pandemic which gradually lessened. Clearly returns were driven by sector-specific sectors, since certain industries’ (e.g. pharmaceuticals, medicals and chemicals,) exhibited considerable higher returns comparing to other sectors (e.g. airlines, tourism, estate).

This study investigates the impact of COVID-19 pandemic on the financial performance of firms listed in the Athens Stock Exchange (ASE). The financial performance of sample firms is depicted by a set of financial ratios. The sample includes 82 companies listed in the ASE during the period 2018–2021. We compare the financial performance of sample firms for the period 2018–2019 (pre-pandemic period) with their performance in the pandemic period of 2020–2021. The findings of the empirical analysis do not suggest that the pandemic had a significant impact on the financial performance of the sample firms. Yet, firms’ sectoral classification determines the impact that the pandemic has on the financial performance of sample firms. In particular, it seems that Industrial Mining and Metals firms and General Retail firms experienced an increase in their liquidity and profitability during the pandemic period, while their leverage decreased in the same period. On the other hand, Technology and Hardware firms and Travel Leisure firms experienced a decrease in their liquidity and profitability, but an increase in their leverage.

The findings of this study contribute to the literature on the impact of pandemic crisis on firms’ financial performance. In addition to researchers and other academics, our findings can also be useful to practitioners and regulators in making investment and policy decisions amid a crisis related to COVID-19 pandemic. The findings of this study can also inform governments about the necessity of providing the appropriate tax incentives.

2 Motivation and Hypotheses Development

Apart the macroeconomic implications of the COVID-19, an alternative line of research focuses on the impact that pandemic had on the financial performance of firms. In most cases, the financial performance of sample-firms was depicted by financial ratios (profitability, leverage, activity, capital structure ratios), while the values of the financial ratios for the pre-pandemic period is compared with the corresponding values for the pandemic period. Most of the studies, [2,3,4,5,6,7,8,9,10,11], provided mixed signals regarding the implications that pandemic had on firms’ financial condition and performance. The overall evidence suggest that impact of pandemic has not been uniform in all economy sectors. The adverse economic conditions resulting from pandemic had a minimal impact (or even a positive one) on the financial performance of firms from certain industries’ (e.g. pharmaceuticals, medicals and chemicals), while significantly affected the performance of firms from other industries (e.g. airlines, tourism, real estate).

The focus on the Greek economy and specifically in the financial performance of Greek listed firms is justified by the fact that the Greek economy is dominated by the services sector. Services like travel, tourism and leisure are sensitive in negative and unexpected events, therefore affecting the demand for products and thus companies’ income.

In order to investigate the impact of pandemic on Greek firms’ financial we examined the following aspects of Greek firms’ financial performance: Liquidity (measured by the current ratio), Leverage (measured by the debt/equity ratio), Profitability (measured by return on assets ratio) and efficiency (measured by the receivables turnover ratio).

In particular, we test the following hypotheses:

H1: The COVID-19 pandemic has a negative impact on the liquidity.

The lower sales caused by the pandemic can have an impact on the value of firms’ current assets since cash and trade receivables will decrease. The value of current ratio will ultimately be affected by changes in current assets.

H2: During the COVID-19 pandemic firms’ leverage increases.

A major reduction in sales will have an impact on the company’s revenues and the cash it receives from cash sales. Moreover, company’s losses from lower sales will have a negative impact on company’s equity.

H3: The COVID-19 pandemic has a negative effect on firm’s profitability.

The weaker consumer spending caused by the pandemic, can have a severe impact on a company’s profitability. Furthermore, when a firm is unable to reduce its running expenses, its profit will further deteriorate.

H4: The COVID-19 pandemic has a negative impact on firm’s efficiency.

The weaker consumer spending caused by pandemic power can have a severe impact on a company’s efficiency depicted by a lower receivables turnover.

3 Research Design

The sample consists by companies that are listed on Athens Stock Exchange in 2018 and remained registered until the end of fiscal year 2021. In order to be included in our sample the 151 companies that were listed at the end of 2021 should had met the following criteria: the company must have been listed in the Athens Stock Exchange before 1 January 2018; the stocks of companies must have not been suspended for more than 12 months at any time period; the stocks of companies must not had been delisted during the period of study. Based on these specifications, the total sample consists of 82 public companies, which were divided proportionally into thirteen sectors: food producers, tobacco, construction and materials, industrial mining and metals, software and computer services, technology and hardware, support services, general retailers, travel leisure, energy and water, household goods, general and engineering industrial and personal goods. The financial sector’s companies, such as banks, holdings and investments, are excluded from the sample data, in order to have a consistent interpretation of certain company characteristics such as earnings and size.

Financial ratios defined as the numerical or quantitative relationship between items or variables. This relationship can be expressed in various terms such as percentages or fractions [11]. We followed the [5] approach regarding the selection and the calculation of financial ratios. In particular:

Current ratio (CR) measures a firm’s ability to pay off its short-term liabilities with its current assets and it is calculated by the formula, Current Assets/Current Liabilities.

Debt to Equity Ratio (DER) is classified as financial leverage ratio and shows the financial structure of a firm. This ratio provides an indication of a firm’s solvency.

Return on Assets (ROA) is used to measure firms’ profitability of a firm. This ratio is a significant indicator for the firm’s ability to generate revenue by exploiting its assets and it is calculated by the formula is Profit/ Total Assets. Receivables Turnover Ratio (RTO) is included in Activity Ratios, it is a criterion for effective management of receivables and firm’s liquidity. This ratio is computed as Sales/Average Receivables.

The data have been derived from DataStream and ICAP data bases. We adopt an event study methodology comparing sample firms’ financial performance the period before pandemic and during the pandemic period.

4 Descriptive Statistics

The results of the descriptive analysis in Table 1 illustrate that there is an increase in the average current ratio in Greek Companies during the Covid-19 pandemic compared to before the Covid-19 pandemic. The average value of the current ratio before the COVID-19 pandemic was 1.899, while the average value of the current ratio during the COVID-19 pandemic was 2.004. The increment in the current ratio from the COVID-19 pandemic to during the COVID-19 pandemic was 0.145. This increase in average indicates that the pandemic has not a negative impact upon firms’ liquidity. In comparison to the period prior to the COVID-19 epidemic, the average value of DER increased throughout the pandemic. Before the COVID-19 epidemic, the average value of DER was 0.598, during the pandemic the average value of DER was 1.519. Based on changes in the DER value, this increase in average shows that the COVID-19 pandemic has had a detrimental effect on the company’s financial performance. Before the pandemic DER was under unit (DER < 1) that indicates that Debt was a smaller amount than Equity and the creditors have comparatively less financial interest in the business, while companies and sectors in this range of ratio are characterized by high quality lending and credit security. In the other side, during pandemic DER ratio is above unit (DER > 1) which indicates that Debt is a bigger amount than Equity and the creditors have comparatively more financial interest in the business, while companies and sectors in this range of ratio are characterized by low quality lending and credit security.

Table 1 Descriptive statistics in overall sample
Full size table

With respect to profitability as depicted by ROA ratio, the COVID-19 pandemic condition has positively affected firms’ financial performance. Prior to the COVID-19 pandemic, ROA had an average value of 1.220, but it had an average value of 2.435 during the epidemic. Between before and after the COVID-19 epidemic, the average ROA increased by 1.215 points. This event depicts that companies manage efficiently total assets to generate profits. Before the COVID-19 epidemic, the average value of receivable turnover was 4.309; during the pandemic, the average value of turnover rose to 4.652. Prior to the COVID-19 pandemic, the average value of receivable turnover increased by 0.343. An increment of RTO is an indication that the average of companies collects the receivables more quickly in pandemic than before then and as result it improves the liquidity as it is depicted by the aforementioned improvement of current ratio.

We found that the impact of the COVID-19 pandemic was not uniform across the main sectors of the Greek Economy. The particular aspects of the financial performance of certain industries exhibit an improvement during the pandemic period (e.g. house-hold goods), while in other cases the impact of the COVID-19 pandemic was mainly negative. For instance, the Travel and Leisure firms experienced a dramatic decline in their profitability (ROA decreased from 4.243 in pre-pandemic period to 1.542 in the pandemic period).

The Industrial Mining and Metals, General Retailers and Household Goods sectors exhibited an increase in liquidity, profitability, and activity, and decrease in their leverage. Sectors that experienced a reduction in liquidity and profitability are Technology and Hardware and Travel Leisure. Tourism sector has a significant contribution to the Greek economy, reaching 21% of GDP on an annual basis. Due to the restrictive measures on tourist movements, businesses in the sector, regardless of size, recorded heavy losses, as tourism receipts for the period Jan–Sept 2020 suffered a decrease of 78% compared to the corresponding period of 2019. Listed companies were not unaffected by the pandemic. In particular, the hotel companies in the sample suffered a 75% reduction in turnover due to reduced tourist flows and revenues, resulting in pre-tax losses and negative profit margins. Their borrowing increased by 4% while their equity decreased by 6%, leading to an increased loan-to-equity ratio of 9 percentage points. The decline in revenue in the remaining listed tourism businesses amounted to 20%, while EBITDA decreased by 22% and in total presented losses of € 3.3m. These findings are in line with the conclusions of [12] that maintained that crowd-dependent industries that are most negatively impacted by the current COVID-19 pandemic are tourism and its supporting industries, such as mass transit, hotels, and tertiary product companies.

5 Empirical Results

In order to investigate the significance of the impact of the COVID-19 pandemic upon the financial performance of Greek listed firms we proceed in inferential statistical analysis of data. In particular, we applied the Wilcoxon Signed-Rank test. The Kolmogorov–Smirnov and Shapiro–Wilk normality tests performed show that the research data are not normally distributed because the significance value is < 0.05, especially in the CR, DER and RTO variables. Therefore, a nonparametric statistical test, such Wilcoxon Signed-Rank, must be used.

The results of the Wilcoxon Signed-Rank test in Table 2 show that there is a significant difference in the values of DER between before and during the COVID-19 pandemic, which can be seen from the Asymp. Sig. (2-tailed) value of 0.00 < 0.05. For the current ratio, ROA and RTO, there is no significant difference between before and during the COVID-19 pandemic, which can be seen from the Asymp. Sig. (2-tailed) values of 0.152, 0.057 and 0.411 > 0.05. It can be concluded that H1, H3 and H4 are rejected, while H2 is accepted.

Table 2 Wilcoxon signed-rank test results
Full size table

Based on the statistical analysis results, H1, H3 and H4 are rejected, which means that there is no significant difference in the liquidity ratio (current ratio), profitability ratio (Return On Assets) and activity ratio (Receivable Turnover Ratio) between before and during the COVID-19 pandemic. The descriptive analysis results show an increase in the average value of the current ratio, Return On Assets and Receivable Turnover Ratio. However, according to the results of the Wilcoxon Signed-Rank test, these changes are not significant.

We found that DER has increased significantly during the pandemic period. Also, [4] provide evidence that DER increased during the pandemic period. Furthermore, [9] maintain that during the pandemic period the corporation supported its operations by issuing debt, which caused the level of debt to rise more dramatically than its equity. Others reveal that there is a significant difference in the value of DER before and after the COVID-19 [13]. Yet, [11] found there is no significant association between COVID-19 and firm leverage which is measured by DER.

Similar to [2] and [6] we found that there is no significant difference in the current ratio before and during the COVID-19 pandemic. On other hand, [9] found that there was a decrease in liquidity ratio. The economic crisis caused by the COVID-19 pandemic has not a significant impact upon sample firms’ profitability (ROA) and activity ratio (RTO). With respect to profitability, these findings are in line with the findings of [3] and [10]. On the other hand, [11] provide evidence for statistically significant difference in ROA before and during COVID-19. Concerning RTO, our findings are similar with those of [7] who found no difference in the turnover of receivable before and during the epidemic. On the other hand, [5] and [13] indicate that there is a significant difference in the value of RTO in the period prior to pandemic comparing the pandemic period.

6 Conclusion

We found that during the pandemic period sample firms experienced an increase in Current Ratio, DER, Return on Assets and Receivables Turnover. Yet, there was no significant difference in Current Ratio, Return on Assets and Receivables Turnover. On the other hand, there was significant difference in DER. The sectors that experienced an increase in liquidity ratio, profitability ratio, and activity ratios but a decrease in leverage ratio were Industrial Mining and Metals and General Retail. Sectors that experienced a decrease in liquidity, profitability and activity ratio, but an increase in leverage ratio were Technology and Hardware and Travel Leisure. Given the economic turmoil caused by the COVID-19 pandemic it might have been sensible to expect that the financial performance of Greek firms would adversely affected. Our study, does provide some evidence that the adverse consequences of the pandemic might not have been that severe.

The findings of this study can be a source of relevant information for investors or potential investors when making investment decisions amid a crisis related to the present COVID-19 pandemic. The findings of this study can also be utilized to inform the government about the necessity of giving the appropriate tax incentives for the impacted industries so that tax incentives can be provided to the appropriate sectors.

Future studies can build on the current study’s findings by exploring the significance of additional financial variables in explaining firms’ financial performance along with the impact of non-firm specific variables like GDP and other macroeconomic indicators.