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The Impact of the COVID-19 Pandemic on Firm Performance

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DOI: 10.1080/1540496X.2020.1785863

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 Emerging Markets Finance and Trade

ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/mree20

The Impact of the COVID-19 Pandemic on Firm

Performance

Huayu Shen , Mengyao Fu , Hongyu Pan , Zhongfu Yu & Yongquan Chen

To cite this article: Huayu Shen , Mengyao Fu , Hongyu Pan , Zhongfu Yu & Yongquan Chen
(2020) The Impact of the COVID-19 Pandemic on Firm Performance, Emerging Markets Finance
and Trade, 56:10, 2213-2230, DOI: 10.1080/1540496X.2020.1785863

To link to this article: https://doi.org/10.1080/1540496X.2020.1785863

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EMERGING MARKETS FINANCE AND TRADE
2020, VOL. 56, NO. 10, 2213–2230
https://doi.org/10.1080/1540496X.2020.1785863

The Impact of the COVID-19 Pandemic on Firm

Performance
a
Huayu Shen , Mengyao Fua, Hongyu Panb, Zhongfu Yua, and Yongquan Chena
a
Department of Accounting, School of Economics and Management, North China Electric Power
University, Beijing, China; bDepartment of Accounting, School of Business, Guilin University of
Technology, Guilin, China

ABSTRACT KEYWORDS
Using the financial data of listed Chinese companies, we study Pandemic; COVID-19;
the impact of COVID-19 on corporate performance. We show corporate performance;
that COVID-19 has a negative impact on firm performance. The investment; finance
negative impact of COVID-19 on firm performance is more JEL
pronounced when a firm’s investment scale or sales revenue is G31; G32; M41; C33
smaller. We show, in an additional analysis, that the negative
impact of COVID-19 on firm performance is more pronounced in
serious-impact areas and industries. These findings are among
the first empirical evidence of the association between pan­
demic and firm performance.

1. Introduction
The outbreak of the novel coronavirus (COVID-19) brought seriously affected
health care, economy, transportation, and other fields in different industries
and regions. Population mobility sharply dropped, as a result of the quarantine
policy, which led to weakened spending power and a stagnant economy. At the
macro level, the COVID-19 outbreak caused the worst global recession since
1930, when the economy got absolutely creamed. The gross domestic product
of China fell by 6.8% in the first quarter compared with the same period
last year,1 and many countries suffered severe corporate bankruptcies and job
losses (Fu and Shen 2020). At the firm-level, the COVID-19 outbreak may
affect the stock market (Iyke 2020a; Liu, Wang, and Lee 2020; Narayan and
Phan 2020), firm performance in the energy industry (Fu and Shen 2020) and
other aspects (Hagerty and Williams 2020). It is necessary to evaluate the
impact of such major public health emergencies on corporate performance in
these tough economic times, as the listed companies are the base component
of national economy. Investigations suggest that internal factors of the finan­
cial system may be the main causes of the economic decline in the recent years
(Zubair, Kabir, and Huang 2020). For instance, the economic “stagflation” of
the 1970s was caused by the soaring oil prices during this period and the
economic depression of 2008 was caused by subprime mortgage crisis (Zubair,

CONTACT Hongyu Pan [email protected] Guilin University of Technology, Guilin 541004, China
© 2020 Taylor & Francis Group, LLC
2214 H. SHEN ET AL.

Kabir, and Huang 2020). Nevertheless, the recent recession is due to external
factors, mostly resulting from the mandatory policy of lockdowns following
the COVID-19 pandemic. Therefore, the methods for analyzing and measur­
ing the economic impact of financial crises cannot be applied under the
COVID outbreak. At present, there are limited methodologies for assessing
the impact of emergencies, especially the impact of the COVID-19 pandemic,
on the economy, industries, and firms.
This paper is divided into two parts: performance forecasting and quantify­
ing the impact of COVID-19. Firstly, we use the financial data of listed Chinese
companies from 2013 to 2019 to predict their performance in the first quarter
of 2020. The forecast results are compared with the actual value to chart the
pandemic impact on firm-level performance in different industries. Further,
we use the financial data of the first quarter of 2014–2020 to quantify the
pandemic impact. We use investment growth and total revenue as moderating
variables to investigate the mechanism of the pandemic impact. Finally, we
divide the listed companies into high- and low-affected groups by region and
industry dimensions. We then use a Differences-in-Differences (DID) model
to quantify the impact of COVID-19 on firm performance along the two
dimensions. We find that the COVID-19 outbreak resulted in a decline in
corporate performance, both by industry and region dimensions. More invest­
ment and income would effectively reduce the negative impact of the pan­
demic. In the robustness tests, we considered alternative dependent variables
and used the propensity score matching (PSM) method. We also performed
a contractual test as part of the robustness tests. The results in the robustness
tests are consistent with the main ones.
The paper contributes to the literature as follows. Firstly, we investigated the
impact of COVID-19 on corporate performance in different regions and
industries for the first time. Studies on the impact of the COVID pandemic
on the economy mostly focused on the macro level. Extant studies investigated
the connection between COVID-19 and oil price (Gil-Alana and Monge 2020;
Narayan 2020), COVID-19 and exchange rates (Iyke 2020b), and the impact of
COVID-19 on US partisan conflict index (Apergis and Apergis 2020). In this
paper, we shifted the perspective to corporate performance at the regional,
industry, and firm levels, quantifying the impact of COVID-19 using the DID
method. Secondly, we explored the mechanisms through which COVID-19
affects corporate performance. We found that the COVID-19 outbreak
reduced corporate revenues, which ultimately led to lower performance,
implying that increasing investment and income will reduce the negative
impact of the pandemic. Thirdly, this paper enriches the literature measuring
the impact of major public health emergencies on economy. Country
responses and the reaction of the stock market to COVID-19 are previously
discussed (Liu, Wang, and Lee 2020; Narayan and Phan 2020). Our analysis is
novel in that we examine how COVID-19 influences corporate performance.
 EMERGING MARKETS FINANCE AND TRADE 2215

This paper also proposes an empirical method to evaluate the impact of the
pandemic on corporate performance in different Chinese industries at the
provincial level.
The remainder of this paper is arranged as follows. Section 2 presents the
theoretical analysis and research hypotheses. Section 3 outlines the samples
and methods. Sections 4 and 5, respectively, present the empirical results and
robustness tests. Section 6 concludes the paper.

2. Theoretical Analysis and Research Hypotheses

2.1. COVID-19 and Firm Performance

COVID-19 is a major health emergency worldwide. More than seven million

people have been diagnosed worldwide, since January 2020,2 and several
countries and regions are affected by the pandemic. Countries are forced to
adopt quarantine measures because of the highly infectiousness nature of
COVID-19. These measures have a great negative impact on aggregate
demand, especially on consumption and exports. On the one hand, people
were asked to go out less, and crowded places such as shopping malls were
shut down. On the other hand, several countries imposed restrictions on
import to prevent viral transmission, which greatly hit export-oriented busi­
nesses in China. Consequently, gross domestic product of China decreased by
6.8% in the first quarter of 2020. Extant studies investigated the connection
between COVID-19 and oil price (Gil-Alana and Monge 2020; Narayan 2020),
while few studies examined the impact of COVID-19 on the performance of
public companies. Based on this analysis, we proposed the following research
hypothesis:

H1-1: Ceteris paribus, COVID-19 has a negative impact on the performance of

listed companies.

Via which channel, however, does the COVID-19 affect corporate perfor­
mance? According to the real options theory, managers tend to defer invest­
ment when uncertainties rise, which may lead to miss profitable projects (Zeng
et al. 2016). COVID-19 brings higher external risks, which lead managers to
increase their cash holdings in case of emergencies. More cash retention takes
up the investment funds and reduces enterprises’ momentum of sustainable
development. In the short term, based on Maslow’s hierarchy of needs,
Consumers’ demand for health and safety is more urgent than that for social
contact during the pandemic, resulting in a shrinking demand (Hagerty and
Williams 2020). These factors lead to a decline in corporate revenue, and
ultimately a decline in corporate performance. The companies’ productivity
and revenue declined sharply due to the implementation of the quarantine
2216 H. SHEN ET AL.

measures, which inevitably led to performance decline. Based on this analysis,

we hypothesized that:

H1-2: Ceteris paribus, when the firm’s investment scale is smaller, the negative
impact of COVID-19 on firm performance is more pronounced.

H1-3: Ceteris paribus, the negative impact of COVID-19 on firm performance is

more pronounced, if a firm’s sales revenue is less.

2.2. The Impact of COVID-19 on the Sector Dimension

A sector refers to the detailed division of the organizational structure system of

business units or individuals engaged in homogenous production in the
national economy (Phan, Sharma, and Narayan 2015). Sector classification
can explain the development stage of the industry itself and its status in the
national economy. Previous studies investigated that country responses and
the reaction of the stock market to COVID-19 (Narayan and Phan 2020), and
the impact of COVID-19 on US partisan conflict index (Apergis and Apergis
2020). The drawback of investigating the impact of the pandemic at the
aggregate market level is that such an investigation assumes a homogeneous
impact on sectorial performance – which implies that COVID-19 has the same
impact for all sectors. Narayan and Sharma (2011) argue that sectors are
heterogenous and therefore are likely to react to market shocks differently.
Phan, Sharma, and Narayan (2015) also found strong evidence that return
predictability has links to certain industry characteristics. Therefore, the
supply–demand relationship varies with the characteristics of the industry
during the pandemic.
Which sectors are hard hit by the outbreak? Tourism, film and TV enter­
tainment, catering retail, and transportation sectors are the most affected
industries in China (Fu and Shen 2020). Following the restrictions, civil
aviation during the 2020 Spring Festival travel rush period decreased by
29.5%.3 Many countries canceled Chinese flights and imposed immigration
controls on international routes following the COVID-19 outbreak, which
greatly and negatively impacted China’s transportation industry in the first
quarter. In addition, the highly anticipated movies in the Chinese Spring
Festival season pulled from the shelves before their release, and cinemas closed
for a short time to prevent people from gathering in confined space. Based on
historical data, the box office of Chinese New Year movies accounted for about
21% to 32% of the annual box office.4 However, the withdrawal of Chinese
New Year movies this year caused loss in production costs, marketing costs,
and other expenses, which is difficult to be estimated. Tourism has also been
seriously affected by the pandemic. The winter holiday and Spring Festival are
 EMERGING MARKETS FINANCE AND TRADE 2217

the peak seasons for Chinese tourism, which were shut down during the
pandemic. The tourism industry has been hit by the closure of many scenic
spots in China under the quarantine policy, as well as the cancellation of
international flights and immigration controls. Based on this analysis, we
hypothesized that:

H2: Ceteris paribus, the COVID-19 pandemic has a negative impact on the
performance of enterprises in serious-impact industries. That is, the enter­
prises in serious-impact industries have lower performance than those in other
industries, following the pandemic.

2.3. Pandemic Impact in the Regional Dimension

A common feature of all recent studies on COVID-19’s economic impacts is

that they focus on the aggregate market. Gil-Alana and Monge (2020) inves­
tigated the relationship between crude oil prices and COVID-19, finding
a persistent shock on oil prices. Narayan and Phan (2020) also discussed the
country responses and the reaction of the stock market to COVID-19. In other
words, these studies take a macro perspective in analyzing the role of COVID-
19 in determining the fluctuations in economies. However, extant research
found that the incremental impact of the degree and speed of operations
within a given region, is greater for regions exhibiting faster economic growth
than others exhibiting slower growth (Demirbag, Glaister, and Sengupta
2019). This means the impact of COVID-19 on corporate performance has
obvious regional heterogeneity, since the growth rate is different across
regions. Therefore, the region where the enterprise operates plays a crucial
role in strategic selection and operation management.
After China began its comprehensive fight against the pandemic, seven
provinces – Henan, Hunan, Jiangxi, Anhui, Zhejiang, Guangdong, and
Hubei – implemented tight restrictions on labor and delayed the resumption
of work.5 In contrast, for those cities located far away from the epicenter with
a low rate of staff turnover, the time for resumption will be significantly earlier.
By the end of February, the resumption of work in 31 provinces reached more
than 50%, while Hubei province was still in line.6 According to the signal
theory, early resumption of work gives managers a signal of reduced risk (Fu
and Shen 2020). These companies will end their cash crisis earlier and invest
more capital in profitable projects. In addition, lenders in these regions, such
as banks and investment institutions, will also be affected by risk reduction
signals, thus reducing the financing constraints on enterprises in these regions.
Early resumption provides these companies more time and capital to cope
with the decline in corporate performance, which may make a great difference.
To sum up, we hypothesized that:
2218 H. SHEN ET AL.

H3: Ceteris paribus, the COVID-19 pandemic has a negative impact on

corporate performance in the serious-impact regions. That is, corporate per­
formance in the serious-impact regions is lower than in other regions.

3. Data and Model

We used the financial data of listed Chinese companies from 2013 to 2019 to
predict corporate performance in t + 1 period, i.e. 2014–2020. Then, we
selected data for the first quarter from 2014 to 2020 as the research sample
to investigate the pandemic impact on corporate performance. We excluded
the following data to make it more comparable: (1) ST, *ST, and other
financially distressed companies, and kept the data for companies in normal
operation; (2) data for companies in the banking, securities, and other finan­
cial industries due to the incomparability; (3) companies with missing data. In
order to reduce the impact of outliers, we winsorized the continuous variables
at 1% and 99% levels. All data are from the China Stock Market & Accounting
Research (CSMAR) database.
We adopted the following model to predict corporate performance:

NROAitþ1 ¼ β0 þ β1 SIZEit þ β2 LEVit þ β3 GROWTHit þ β4 HF10it þ β5 LIQit

þ β6 INDUSTRY þ β7 YEAR þ εit
(1)
In order to test the impact of the COVID-19 pandemic on corporate perfor­
mance and the mechanism underlying this impact, we used the following
models:

NROAit ¼ β0 þ β1 CNCAit � Periodit þ β2 CNCAit þ β3 Periodit þ β4 SIZEit

þ β5 LEVit þ β6 GROWTHit þ β7 HF10it þ β8 FCFit þ β9 TRit
þ β10 INDUSTRY þ β911 YEAR þ εit
(2)

NROAit ¼ β0 þ β1 REVit � Periodit þ β2 REVit þ β3 Periodit þ β4 SIZEit

þ β5 LEVit þ β6 GROWTHit þ β7 HF10it þ β8 FCFit þ β9 TRit
þ β10 INDUSTRY þ β11 YEAR þ εit (3)

To further explore the dimensions impact of the COVID-19 pandemic, we

adopted the following DID model:

NROAit ¼ β0 þ β1 treatedi � periodit þ β2 treatedi þ β3 periodit þ β4 SIZEit

þ β5 LEVit þ β6 GROWTHit þ β7 HF10it þ β8 FCFit þ β9 TRit
þ β10 INDUSTRY þ β11 YEAR þ εit (4)
 EMERGING MARKETS FINANCE AND TRADE 2219

where the dependent variable, NROA, is the net profit return rate, which
represents the company’s performance status; period is a dummy variable of
the outbreak point; treated is a dummy variable of “pandemic impact degree”.
Investment growth rate (CNCA) and total revenue (REV) are moderating
variables in the pandemic–performance relationship. When the research is
carried out in an industry dimension, the classification criteria for the treated
are as follows. According to the China securities regulatory commission’s 2012
industry classification guidelines, all listed companies are divided into 18
categories. We have identified the following eight industries as high-impact
groups, which are tourism, film and television entertainment, catering retail,
transportation, realty business, construction, accommodation, and export
manufacturing industries. These industries, which are characterized by per­
sonnel intensity, social interaction, and cross-border trade, have been greatly
affected by the policies implemented in response to the COVID-19 outbreak;
for instance, there was a sharp drop in demand. Other industries are classified
as low-impact industries. The place of incorporation is the basic data of
grouping when taking region as the research dimension. According to the
number of confirmed cases in all provinces on March 26, 2020,7 the areas with
a cumulative number of confirmed cases of more than 500 people were
considered as high-impact areas, and others as low-impact areas. The follow­
ing provinces and cities were listed as high-impact areas: Hubei, Guangdong,
Henan, Zhejiang, Hunan, Anhui, Jiangxi, Shandong, Jiangsu, Chongqing,
Sichuan, and Beijing. We believe that the first quarter will be the main period
affected by COVID-19, since the outbreak of the pandemic (i.e. since January
to February 2020) in China.
This paper focuses on the regression coefficient of treated � period. If the
coefficient is negative, it means that the pandemic has a negative effect on the
performance of the enterprises; otherwise, it has a positive effect. Following
the studies on factors affecting corporate performance (see, example, Fu and
Shen 2020), we include, as controls, enterprise size (SIZE), asset-liability
ratio (LEV), revenue growth rate (GROWTH), the share held by the top 10
shareholders (HF10), free cash flow (FCF), and trade receivable turnover
(TR). In addition, we control for industry and annual-fixed effects. The main
variables and related definitions used in the model are shown in Table 1.

4. Empirical Results
4.1. Performance Forecast

Granziera and Sekhposyan (2019) found that business cycle indicators, finan­
cial conditions, uncertainty, and measures of past relative performances are
generally useful for explaining models’ relative forecasting performances.
Through the comparison of performance forecast and actual data, information
2220 H. SHEN ET AL.

Table 1. Variable definitions.

Variables Descriptions
NROA Net profit margin on total assets, net profit/ending balance on total assets
Treated The dummy variable of “outbreak impact degree” is 1 if the enterprise belongs to the high-impact
region/industry, otherwise it is 0.
Period The dummy variable of “outbreak time” is 1 after the outbreak, or 0 otherwise.
CNCA Growth rate of fixed assets is measured as: (ending value of net fixed assets for the current period –
initial value of net fixed assets for the current period)/(initial value of net fixed assets for the current
period)
REV The logarithm of total revenue for the current period
SIZE The size of an enterprise is measured by the logarithm of its total assets
LEV The asset-liability ratio is the total liabilities/total assets measure
GROWTH Growth rate of operating income, i.e. (current operating income – previous operating income)/
previous operating income
HF10 The Herfindahl index 10, or the share held by the top 10 shareholders
FCF Free cash flow, EBITDA + depreciation and amortization – working capital increase – capital
expenditure
TR Trade receivable turnover/1000, Trade receivable turnover = operating revenue/average trade
receivable balance
INDUSTRY Used to control industry fixed effect
YEAR Used to control the fixed effect of year
This table introduces all the variables used in the above four models and their definition descriptions.

users will have a more convenient and intuitive understanding of the impact of
COVID-19 on the performance of listed companies, which are the basic
component of national economy.
We predicted the performance of various industries in the first quarter of
2020 using Model (1), and predicted values are presented in Figure 1. The
horizontal (i.e. x) axis corresponds to the industry names, as shown in Table 2.
The results show that all sectors were affected by the COVID-19 pandemic,
with the actual performance 0.005 below the predicted performance and thus
supporting hypothesis H1. The hardest-hit sectors by the pandemic were
accommodation and catering, followed by education. Under the impact of
the outbreak, the net profit margin of total assets in the accommodation and
catering industry was −0.02, which was significantly lower than other indus­
tries. This sector was virtually shut down in the first quarter due to the
emergency quarantine measures implemented across the entire country.
Meanwhile, the winter vacation, during which extracurricular tutoring is
usually carried out, was wasted, and the education industry lost most revenue
in the first quarter.

4.2. Descriptive Statistics

Table 3 reports the descriptive statistics of the main variables studied in this
paper, which are based on the financial data from 2014 to 2020. The average
value of NROA is 0.008, and the median value is 0.006, indicating that the
overall profitability of listed companies is not high or these companies are on
the edge of profitability. The average value of CNCA is −0.0039; thus, enter­
prises have reduced the investment in fixed assets on average. The income
 EMERGING MARKETS FINANCE AND TRADE 2221

0.03

0.02

0.01

-0.01

-0.02

-0.03

Forecast Actual

Figure 1. Forecast and actual value of industry performance in 2020 Q1. Calculated and plotted
according to the financial data of China’s listed companies from 2013 to 2020.

Table 2. Industry code descriptions.

Code Descriptions
A Agriculture, forestry, animal husbandry and fishery
B The mining industry
C Manufacturing
D Electricity, heat, gas and water production and supply industries
E Construction
F Wholesale and retail
G Transportation, warehousing and postal services
H Accommodation and catering
I Information transmission, software and information technology services
K Leasing and business services
L Scientific research and technical services
M Water, environment and utilities management
N Residential services, repairs and other services
P Education
Q Health and social work
R Culture, sport and entertainment
S Comprehensive
This table reports the descriptions of Industry code. The information comes from the
industry code issued by China securities regulatory commission in 2012.

levels of listed companies vary greatly, with a standard deviation of 1.5456.

After logarithmic calculation, the standard deviation of enterprise scale is
1.280, with a maximum value of 26.231 and a minimum value of 19.917,
which reflects the large difference in the size of listed enterprises. The average
asset-liability ratio is 0.417, which is kept at a reasonable level and plays a good
leverage role. The average growth rate of operating income is −0.194, and the
median is −0.195, which reflects the trend of the decline of the overall operat­
ing income. The average value of the Herfindahl index 10 is 0.156, which
means the average equity concentration is not high; the associated standard
deviation is 0.112. Free cash flow reflects the cash flow strain of the enterprise,
and the average value of −0.162 reflects a relatively tight cash flow. The trade
2222 H. SHEN ET AL.

Table 3. Descriptive statistics.

Variables N Mean SD Min Max P50
NROA 11,921 0.008 0.013 −0.023 0.056 0.006
CNCA 11,921 −0.0039 0.0596 −0.1348 0.3906 −0.0147
REV 11,921 20.0648 1.5456 16.2403 24.2174 19.9649
SIZE 11,921 22.364 1.280 19.917 26.231 22.189
LEV 11,921 0.417 0.206 0.051 0.893 0.405
GROWTH 11,921 −0.194 0.349 −0.881 1.278 −0.195
HF10 11,921 0.156 0.112 0.015 0.551 0.124
FCF 11,921 −0.162 1.642 −9.437 6.397 −0.027
TR 11,921 0.007 0.023 0.00004 0.181 0.001
This table reports the result of descriptive statistics; all variables are provided in Table 1.

receivable turnover rate shows large standard deviation, which reflects the
different efficiency of different enterprises in the operation of assets.

4.3. Unit Root and Parallel Trend Tests

In order to ensure the reliability of the results, we carried out unit root and
parallel trend tests. These also ensure the stability of the data. All variables
passed the unit root test at the 1% level, and the data were stable. According to
the results of parallel trend test, the performance variation trend of the high-
impact group and the low-impact group was similar before the pandemic
outbreak in early 2020, which could be further modeled. The parallel trend
test results are presented in Figures 2 and 3.

4.4. Regression Results

We first considered the impact of COVID-19 on corporate performance and

the mechanisms underlying this impact. We took operating investment
growth rate (CNCA) and total revenue (REV) as the moderating variables.
The empirical results are shown in Table 4. Panel A reports the pandemic’s
impact on corporate performance. The coefficient of period is −0.0044 and is
significant at 1% level. COVID-19 has a negative impact on performance,
which leads to the decline of the profit margin, thus supporting hypothesis
H1-1. Panels B and C report results for investment and revenue moderating
effect, respectively. In Panel B, the regression coefficient of the core variable
period is −0.0042, which is significant at the 1% level, indicating that the
COVID-19 pandemic has a great negative impact on the corporate perfor­
mance. The coefficient of CNCA � period is 8.8008, which is significant at the
5% level. The signs of the two variables are different, indicating that high fixed
asset investment will weaken the negative impact of the pandemic on corpo­
rate performance. In Panel C, the coefficient of REV � period is 0.0009 and is
significant at the 1% level. This is contrary to the period coefficient of −0.0030,
indicating that an increase in corporate income will weaken the negative
 EMERGING MARKETS FINANCE AND TRADE 2223

Figure 2. Parallel trend test in industry dimension. Calculated and plotted according to the
financial data of China’s listed companies from 2014 to 2020.

Figure 3. Parallel trend test in region dimension. Calculated and plotted according to the financial
data of China’s listed companies from 2013 to 2020.

impact of the pandemic. The results support hypotheses H1-2 and H1-3,
respectively.
2224 H. SHEN ET AL.

Table 4. Impact of COVID-19 on firm performance and the influencing mechanism test.
Panel A Panel B Panel C
Baseline Investment Revenue
Period −0.0044*** −0.0042*** −0.0030***
(−13.9575) (−13.4412) (−9.8444)
CNCA*Period 8.8008**
(2.0625)
CNCA 2.8315*
(1.9356)
REV*Period 0.0009***
(3.8237)
REV 0.0062***
(35.0446)
SIZE 0.0026*** 0.0026*** −0.0037***
(17.3273) (17.2104) (−15.8219)
LEV −0.0235*** −0.0235*** −0.0250***
(−31.5029) (−31.5544) (−35.0957)
GROWTH 0.0074*** 0.0074*** 0.0041***
(24.7820) (24.7087) (13.6314)
HF10 0.0072*** 0.0072*** 0.0049***
(5.1331) (5.1655) (3.6431)
FCF −0.0002*** −0.0002*** −0.0002***
(−4.5577) (−4.6000) (−3.6845)
TR 0.0324*** 0.0322*** 0.0140***
(6.0869) (6.0564) (2.7502)
Constant −0.0413*** −0.0408*** −0.0238***
(−11.8996) (−11.7881) (−7.0254)
IND Yes Yes Yes
YEAR Yes Yes Yes
N 11,914 11,914 11,914
Adj-R2 0.3758 0.3780 0.3825
The mechanism of pandemic’s impact on corporate performance. This table reports the results of the
regressions by investment and revenue moderating effects. The dependent variable is net return on
assets. Columns (1) shows the pandemic impact. Columns (2) and Columns (3) shows the moderating
effect of investment and revenue. Significance levels of 10%, 5%, and 1% are denoted by *, **, and ***,
respectively.

Further, we grouped the enterprises using the degree of COVID-19 impact

by industry and region for our analysis. The DID estimates of the impact of
COVID-19 on corporate performance are shown in Table 5. Panels D and
E show the results for high-impact industries and high-impact regions, respec­
tively. In Panel D, the regression coefficient of the core variable treated �
period is −0.0011, which is significant at the 5% level, indicating that the
COVID-19 pandemic has a great negative impact on corporate performance,
thus supporting hypothesis H2. Industries, such as tourism and film entertain­
ment, are typically service-oriented, which are influenced by social network­
ing. These companies should have realized growth mostly, as people have
more spare time during the Spring Festival and winter holiday. However, the
ban on overseas travel and the withdrawal of films drove revenues downward,
leading to a negative impact of COVID-19 on performance in these industries.
The pandemic is the decisive factor that caused a significant decline in the
performance of high-impact industries.
 EMERGING MARKETS FINANCE AND TRADE 2225

Table 5. Impact of COVID-19 on firm performance between

serious impact industry and region.
Panel D Panel E
Industry Region
Treated*period −0.0011** −0.0011**
(−2.5058) (−2.1782)
Treated −0.0012*** 0.0017***
(−2.6339) (3.8288)
Period −0.0040*** −0.0035***
(−11.3798) (−6.9329)
SIZE 0.0026*** 0.0026***
(17.3459) (17.3910)
LEV −0.0234*** −0.0232***
(−31.4776) (−31.2051)
GROWTH 0.0073*** 0.0074***
(24.5227) (24.7822)
HF10 0.0070*** 0.0072***
(4.9580) (5.1005)
FCF −0.0002*** −0.0002***
(−4.5411) (−4.5273)
TR 0.0319*** 0.0332***
(5.9898) (6.2480)
Constant −0.0414*** −0.0424***
(−11.9230) (−12.2156)
IND Yes Yes
YEAR Yes Yes
N 11,921 11,921
Adj-R2 0.3779 0.3793
The impact of COVID-19 on corporate performance. This table reports
the original regression results both in industry dimension and regio­
nal dimension. The dependent variable is net return on assets.
Columns (1) shows the original regression results in industry dimen­
sion. Columns (2) show the regression results in regional dimension.
Significance levels of 10%, 5%, and 1% are denoted by **, and ***,
respectively.

In Panel E, the regression coefficient of the core variable treated � period is

−0.0011 and significant at the 5% level, as shown by the results without the
PSM method. Taking the region as the criterion, the pandemic has
a significant negative impact on the serious-impact regions, which is reflected
by the decline in corporate performance. To curb the spread of the pandemic,
governments of these regions adopted policies that restricted the movement of
people. This led to lower consumption levels and the shutdown of many firms
in the high-impact areas. Both consumption and production decreased or
stagnated, while fixed costs remained at the same level. As a result, corporate
performance in high-impact regions declined, which supports hypothesis H3.

5. Robustness Tests
In order to ensure the credibility of the results by reducing the deviation
caused by errors, we used the PSM method, alternative dependent variables,
and a counterfactual test. This forms our robustness tests. The test results are
shown in Tables 6 and 7.
2226 H. SHEN ET AL.

5.1. Estimates Using the PSM Method

We used the PSM method to shrink the sample size along two dimensions. The
results presented in the first column of Table 6 suggest that the coefficient of the
interaction term after the PSM is −0.0014 and is significant at the 1% level, which
supports hypothesis H2 that the pandemic has a significant negative effect on the
high-impact industry. We repeated the analysis for the regional dimension. The
results suggest that, after the PSM, the coefficient of the interaction term is
−0.0019 and is significant at the 1% level, which supported hypothesis H3 that
the pandemic has a significant negative effect on the high-impact areas.

5.2. Estimates Based on Alternative Dependent Variables

We measured corporate performance using the return on equity (ROE), and
established the following model:
ROEit ¼ β0 þ β1 treatedi � periodit þ β2 treatedi þ β3 periodit þ β4 SIZEit
þ β5 LEVit þ β6 GROWTHit þ β7 HF10it þ β8 FCFit þ β9 TRit
þ �INDUSTRY þ �YEAR þ εit (5)

Table 6. Robustness test.

Panel D Panel E Panel F
PS Matched PS Matched Industry Regional
Treated*period −0.0014*** −0.0019*** −0.0029*** −0.0022**
(−2.7914) (−2.6371) (−3.2028) (−2.1598)
Treated −0.0012** 0.0011** −0.0011 0.0037***
(−2.4402) (2.2414) (−1.3556) (4.6900)
Period −0.0033*** −0.0037*** −0.0063*** −0.0056***
(−7.1919) (−6.1599) (−9.2014) (−5.6206)
SIZE 0.0025*** 0.0030*** 0.0052*** 0.0051***
(15.0676) (14.9585) (18.5482) (18.5777)
LEV −0.0230*** −0.0295*** −0.0308*** −0.0304***
(−27.0570) (−28.3515) (−21.8226) (−21.5304)
GROWTH 0.0081*** 0.0090*** 0.0140*** 0.0141***
(22.3192) (19.3332) (24.0244) (24.2705)
HF10 0.0070*** 0.0037** 0.0153*** 0.0155***
(4.5069) (2.0037) (5.9114) (6.0212)
FCF −0.0001*** −0.0001* −0.0005*** −0.0005***
(−2.7228) (−1.8196) (−5.2885) (−5.2909)
TR 0.0345*** 0.0171*** 0.0626*** 0.0657***
(6.4002) (4.6247) (6.1643) (6.4801)
Constant −0.0391*** −0.0481*** −0.0916*** −0.0935***
(−10.4418) (−10.9685) (−14.5804) (−14.9020)
IND Yes Yes Yes Yes
YEAR Yes Yes Yes Yes
N 8,316 5,446 11,900 11,900
Adj-R2 0.3758 0.3649 0.3190 0.3253
The impact of COVID-19 on corporate performance. This table reports the results of the regressions of original
regression results, results after propensity score matched method and results of alternative dependent variable
test. The dependent variable is net return on assets in Columns (1) and (2), and returns on equity in Columns (3) and
Columns (4). Columns (1) shows the regression results after PS-matched in industry dimension. Columns (2) show
the regression results after PS-matched in regional dimension. Columns (3) reports regression results in industry
dimension and Columns (4) reports results in regional dimension. Significance levels of 10%, 5%, and 1% are
denoted by *, **, and ***, respectively.
 EMERGING MARKETS FINANCE AND TRADE 2227

Table 7. Placebo test.

Panel G
Industry Regional
Treated*period −0.0005 −0.0003
(−1.2033) (−0.6815)
Treated −0.0012** 0.0015***
(−2.3202) (2.9773)
Period −0.0044*** −0.0043***
(−11.0524) (−8.2611)
SIZE 0.0030*** 0.0030***
(17.3977) (17.4315)
LEV −0.0261*** −0.0260***
(−30.4105) (−30.1757)
GROWTH 0.0082*** 0.0082***
(23.1464) (23.3905)
HF10 0.0068*** 0.0070***
(4.2646) (4.4160)
FCF −0.0003*** −0.0003***
(−4.3330) (−4.3500)
TR 0.0386*** 0.0398***
(6.2336) (6.4330)
Constant −0.0475*** −0.0484***
(−12.2568) (−12.4761)
IND Yes Yes
YEAR Yes Yes
N 11,921 11,921
Adj-R2 0.3694 0.3703
The impact of COVID-19 on corporate performance. This table reports
the results of the regressions of original regression results both in
industry dimension and regional dimension. The dependent variable
is net return on assets. Columns (1) shows the original regression
results in industry dimension. Columns (2) show the regression results
in regional dimension. Significance levels of 10%, 5%, and 1% are
denoted by **, and ***, respectively.

We estimated this regression and reported the results in Panel F of Table 6.

The first column reflects the impact of the pandemic on different industries.
The interaction term coefficient is −0.0029 and is significant at the 1% level,
indicating that the pandemic has a significant negative effect on corporate
performance in the high-impact industries. The second column reflects the
pandemic’s impact along the regional dimension. The coefficient of the inter­
action term is −0.0022 and is significant at the 5% level, indicating that
corporate performance in the high-impact regions is greatly affected by the
negative impact of the pandemic. The pandemic had a significant restricting
effect on production and sales, which eventually led to the decline of corporate
performance. This analysis proves that the results are robust.

5.3. Placebo Test

We used a placebo experiment to perform the counterfactual analysis. To do
this, we replaced the DID time point year 2020 with 2019, 2018, and 2017,8
and the results are shown in Table 7 (see Guariso and Verpoorten 2018). The
effect of the pandemic on corporate performance is neither significant in the
2228 H. SHEN ET AL.

industry dimension nor in the regional dimension, indicating that the main
results are robust.

6. Conclusion
Focusing on firm-level performance, this paper comprehensively discusses the
impact of the COVID-19 pandemic on corporate performance and its mechan­
ism. We also make a further discussion on the pandemic impact along two
dimensions: serious-impact industries and serious-impact regions. Our study
found that the COVID-19 outbreak has a significant negative impact on the
performance of listed Chinese companies by decreasing investment scales and
reducing the total revenue. For the industries affected by the pandemic, such as
tourism, catering, and transportation, there is a significant decline in corporate
performance in the first quarter of 2020. The pandemic has a negative impact on
the production, operation, and sales of these industries, which is eventually
reflected in the negative return rate. Along the regional dimension, the negative
impact is much more pronounced in high-affected areas as strict quarantine
measures limit consumptions and productions, sending a negative signal to
managers and its stakeholders. Financial constraints may make the operation
even harder in the pandemic (COVID-19).
Compared with the SARS pandemic of 2003, the development of transpor­
tation infrastructure increased the speed of population flow, which led to
a faster spread of COVID-19. From the perspective of COVID-19 pandemic
prevention, the quarantine measures across the country effectively hindered
the spread of the pandemic. However, the production and consumption are
limited at the same time, leading to a sluggish market and declining corporate
performance in the first quarter. The pandemic exerted great downward
pressure on China’s macroeconomy. Fortunately, the impact has a large
scope but with a short duration. If the pandemic can be effectively controlled,
the fluctuations of the first quarter’s performance will not change the positive
trend of global economy in a long time.
The negative impact of the pandemic on the global economy is severe, while the
prevention and control of the COVID-19 pandemic are at a crucial stage.
Focusing on corporate performance, there will be great fluctuations in the first
and second quarters of 2020. Key industries, such as tourism and catering, may
become the “epicenter” of the pandemic’s impact. In addition to preventing and
controlling the spread of the pandemic, countries should gradually give support to
the industries that are likely to be severely affected by the pandemic, offering
various subsidies and preferential policies to the enterprises in the worst-hit areas,
so as to enable them to smoothly weather the pandemic storm. Managers should
pay attention to the changing environment outside and adjust their business
strategies in time. It is vital to make the production and operation meet the
consumption trend of “post-pandemic era,” to promptly restore the operation.
 EMERGING MARKETS FINANCE AND TRADE 2229

For investors, they should correctly view the fluctuation of returns during the
COVID-19 pandemic and accordingly control the risks associated with their
financial assets.

Notes
1. Data from China’s monetary policy implementation report for the first quarter of 2020.
http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4021012/index.html.
2. https://coronavirus.jhu.edu/map.html.
3. Data from the ministry of transport, http://www.mot.gov.cn/.
4. http://firstreport.acmr.com.cn/rpdetail.aspx?f1=A01&rpcode=R000016245.
5. https://www.sohu.com/a/371741371_120011488.
6. https://baijiahao.baidu.com/s?id=1659324100357368892&wfr=spider&for=pc.
7. https://news.sina.cn/2020-03-26/detail-iimxyqwa3254791.d.html.
8. We just list the results of year 2019, if you need results for 2018 and 2017, please contact
the authors.

Acknowledgments
Thank you very much for the supports from the Beijing Social Science Foundation Project
(19GLC074) and Fundamental Research Funds for the Central Universities (2020MS044).

Funding
This work was supported by the Beijing Social Science Fund [19GLC074]; and Fundamental
Research Funds for the Central Universities [2020MS044].

ORCID
Huayu Shen http://orcid.org/0000-0003-4093-1515

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