Share:


The effects of COVID-19 on firms’ liquidity: evidence from the Athens Stock Exchange

Abstract

Motivated by the recent study of De Vito and Gómez (2020), this paper examines how the COVID-19 pandemic could influence the liquidity of Greek listed firms. It also explores the main factors that drive the level of operating cash flow (OCF). By simulating a decrease of 50% and 75% in sales, we perform stress-tests on three liquidity ratios for 154 listed firms on Athens Stock Exchange considering their degree of flexibility. For these firms, we also investigate if industry sector matters. Finally, OLS and quantile regression analysis is performed to gain a more detailed and complete picture of the determinants of the OCF. The findings show that on average a firm with limited flexibility, in the worst scenario, would consume its cash reserves in about two months. Furthermore, approximately 9% of all firms would become illiquid in about one year, whereas about 12% would become illiquid within two years. It is also observed that liquidity does not significantly variate across sectors. On average, as revealed by OLS method, the findings support that Total Governance, ROA and Female board significantly affect the OCF. The paper enables policymakers to perceive the magnitude of liquidity risk and improve their decision making.

Keyword : Greek firms, liquidity, stress test, financial shock, quick flexibility, quantile regression

How to Cite
Nerantzidis, M., Koutoupis, A., Tzeremes, P., Drogalas, G., & Mitskinis, D. (2023). The effects of COVID-19 on firms’ liquidity: evidence from the Athens Stock Exchange. Journal of Business Economics and Management, 24(1), 155–176. https://doi.org/10.3846/jbem.2023.18637
Published in Issue
Mar 8, 2023
Abstract Views
540
PDF Downloads
567
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Agyemang, O. S., Osei-Effah, M., Agyei, S. K., & Gatsi, J. G. (2019). Country-level corporate governance and protection of minority shareholders’ rights: Evidence from African countries. Accounting Research Journal, 32(3), 532–552. https://doi.org/10.1108/ARJ-01-2017-0025

Albitar, K., Al-Shaer, H., & Elmarzouky, M. (2021). Do assurance and assurance providers enhance COVID-related disclosures in CSR reports? An examination in the UK context. International Journal of Accounting & Information Management, 29(3), 410–428. https://doi.org/10.1108/IJAIM-01-2021-0020

Albitar, K., Elmarzouky, M., & Hussainey, K. (2022). Ownership concentration and Covid-19 disclosure: The mediating role of corporate leverage. International Journal of Accounting & Information Management, 30(3), 339–351. https://doi.org/10.1108/IJAIM-10-2021-0202

Almeida, H. (2021). Liquidity management during the Covid‐19 pandemic. Asia‐Pacific Journal of Financial Studies, 50(1), 7–24. https://doi.org/10.1111/ajfs.12322

Caramanis, C., Dedoulis, E., & Leventis, S. (2015). Transplanting Anglo-American accounting oversight boards to a diverse institutional context. Accounting, Organizations and Society, 42, 12–31. https://doi.org/10.1016/j.aos.2015.01.001

Chadha, S., & Sharma, A. K. (2015). Determinants of capital structure: An empirical evaluation from India. Journal of Advances in Management Research, 12(1), 3–14. https://doi.org/10.1108/JAMR-08-2014-0051

Chaplinsky, S., & Haushalter, D. (2010). Financing under extreme risk: Contract terms and returns to private investments in public equity. The Review of Financial Studies, 23(7), 2789–2820. https://doi.org/10.1093/rfs/hhq035

Charitou, A., Louca, C., & Tsalavoutas, I. (2016). Corporate governance, agency problems, and firm performance: Empirical evidence from an emerging European market. https://doi.org/10.2139/ssrn.2221612

Chen, A., Chen, L. W., & Kao, L. (2010). Leverage, liquidity and IPO long‐run performance: Evidence from Taiwan IPO markets. International Journal of Accounting & Information Management, 18(1), 31–38. https://doi.org/10.1108/18347641011023261

Chi, W., Huang, H., & Xie, H. (2015). A quantile regression analysis on corporate governance and the cost of bank loans: A research note. Review of Accounting and Finance, 14(1), 2–19. https://doi.org/10.1108/RAF-12-2012-0126

Chiang, S., Kleinman, G., & Lee, P. (2021). The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: Evidence from Taiwan. International Journal of Accounting & Information Management, 29(1), 147–168. https://doi.org/10.1108/IJAIM-07-2019-0084

De Vito, A., & Gómez, J. P. (2020). Estimating the COVID-19 cash crunch: Global evidence and policy. Journal of Accounting and Public Policy, 39(2), 106741. https://doi.org/10.1016/j.jaccpubpol.2020.106741

Demers, E., & Lev, B. (2001). A rude awakening: Internet shakeout in 2000. Review of Accounting Studies, 6(2–3), 331–359. https://doi.org/10.1023/A:1011675227890

Dörr, J. O., Licht, G., & Murmann, S. (2022). Small firms and the COVID-19 insolvency gap. Small Business Economics, 58(2), 887–917. https://doi.org/10.1007/s11187-021-00514-4

Ebeke, M. C. H., Jovanovic, N., Valderrama, M. L., & Zhou, J. (2021). Corporate liquidity and solvency in Europe during COVID-19: The role of policies (IMF Working Papers). International Monetary Fund. https://doi.org/10.2139/ssrn.3852785

Ebersberger, B., & Herstad, S. J. (2013). The relationship between international innovation collaboration, intramural R&D and SMEs’ innovation performance: A quantile regression approach. Applied Economics Letters, 20(7), 626–630. https://doi.org/10.1080/13504851.2012.724158

Edwards, J. B. (2014). Managing the cash flow gap. Journal of Corporate Accounting & Finance, 26(1), 3–10. https://doi.org/10.1002/jcaf.21997

Elmarzouky, M., Albitar, K., & Hussainey, K. (2021). Covid-19 and performance disclosure: Does governance matter? International Journal of Accounting & Information Management, 29(5), 776–792. https://doi.org/10.1108/IJAIM-04-2021-0086

Famiglietti, M., & Leibovici, F. (2020). Covid-19’s shock on firms’ liquidity and bankruptcy: Evidence from the Great Recession. Economic Synopses, 7. https://doi.org/10.20955/es.2020.7

Fassas, A., Bellos, S., & Kladakis, G. (2021). Corporate liquidity, supply chain and cost issues awareness within the Covid-19 context: Evidence from us management reports’ textual analysis. Corporate Governance: The International Journal of Business in Society, 21(6), 1155–1171. https://doi.org/10.1108/CG-09-2020-0399

Giarto, R. V. D., & Fachrurrozie, F. (2020). The effect of leverage, sales growth, cash flow on financial distress with corporate governance as a moderating variable. Accounting Analysis Journal, 9(1), 15–21. https://doi.org/10.15294/aaj.v9i1.31022

Haroon, O., & Rizvi, S. A. R. (2020). Flatten the curve and stock market liquidity – an inquiry into emerging economies. Emerging Markets Finance and Trade, 56(10), 2151–2161. https://doi.org/10.1080/1540496X.2020.1784716

Hoitash, R., & Hoitash, U. (2009). The role of audit committees in managing relationships with external auditors after SOX: Evidence from the USA. Managerial Auditing Journal, 24(4), 368–397. https://doi.org/10.1108/02686900910948206

Jones, P., & Comfort, D. (2020). The COVID-19 crisis and sustainability in the hospitality industry. International Journal of Contemporary Hospitality Management, 32(10), 3037–3050. https://doi.org/10.1108/IJCHM-04-2020-0357

Joseph, A., Kneer, C., & van Horen, N. (2020). All you need is cash: Corporate cash holdings and investment after a crisis. https://doi.org/10.2139/ssrn.3592376

Karim, M. R., Shetu, S. A., & Razia, S. (2021). COVID-19, liquidity and financial health: Empirical evidence from South Asian economy. Asian Journal of Economics and Banking, 5(3), 307–323. https://doi.org/10.1108/AJEB-03-2021-0033

Keogh‐Brown, M. R., Wren‐Lewis, S., Edmunds, W. J., Beutels, P., & Smith, R. D. (2010). The possible macroeconomic impact on the UK of an influenza pandemic. Health Economics, 19(11), 1345–1360. https://doi.org/10.1002/hec.1554

Keynes, J. M. (1936). The general theory of employment, interest, and money. Springer.

Khan, S. U. (2022). Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence. Research in International Business and Finance, 59, 101545. https://doi.org/10.1016/j.ribaf.2021.101545

Kim, S. Y., & Upneja, A. (2014). Predicting restaurant financial distress using decision tree and Ada Boosted decision tree models. Economic Modelling, 36, 354–362. https://doi.org/10.1016/j.econmod.2013.10.005

Koenker, R., & Bassett, Jr. G. (1978). Regression quantiles. Econometrica, 46(1), 33–50. https://doi.org/10.2307/1913643

Kollias, C., Manou, E., Papadamou, S., & Stagiannis, A. (2011). Stock markets and terrorist attacks: Comparative evidence from a large and a small capitalization market. European Journal of Political Economy, 27, S64–S77. https://doi.org/10.1016/j.ejpoleco.2011.05.002

Lakshan, A. I., & Wijekoon, W. M. H. N. (2013). The use of financial ratios in predicting corporate failure in Sri Lanka. GSTF Journal on Business Review (GBR), 2(4), 37–43.

La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of external finance. The Journal of Finance, 52(3), 1131–1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x

La Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155. https://doi.org/10.1086/250042

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1–2), 3–27. https://doi.org/10.1016/S0304-405X(00)00065-9

Lalinsky, T., & Pál, R. (2022). Distribution of COVID-19 government support and its consequences for firm liquidity and solvency. Structural Change and Economic Dynamics, 61, 305–335. https://doi.org/10.1016/j.strueco.2022.03.008

Lazarides, T., & Drimpetas, E. (2011). Evaluating corporate governance and identifying its formulating factors: The case of Greece. Corporate Governance: The International Journal of Business in Society, 11(2), 136–148. https://doi.org/10.1108/14720701111121010

Li, M., & Song, L. (2018). Corporate governance, accounting information environment and investment-cash flow sensitivity. International Journal of Accounting & Information Management, 26(4), 492–507. https://doi.org/10.1108/IJAIM-04-2017-0049

Li, K., Zhou, C., Luo, X. (R.), Benitez, J., & Liao, Q. (2022). Impact of information timeliness and richness on public engagement on social media during COVID-19 pandemic: An empirical investigation based on NLP and machine learning. Decision Support Systems, 162, 113752. https://doi.org/10.1016/j.dss.2022.113752

Liu, C. (M.), O’Farrell, G., Wei, K., & Yao, L. J. (2013). Ratio analysis comparability between Chinese and Japanese firms. Journal of Asia Business Studies, 7(2), 185–199. https://doi.org/10.1108/15587891311319468

Mdaghri, A. A., Raghibi, A., Thanh, C. N., & Oubdi, L. (2020). Stock market liquidity, the great lockdown and the COVID-19 global pandemic nexus in MENA countries. Review of Behavioral Finance, 13(1), 51–68. https://doi.org/10.1108/RBF-06-2020-0132

Min, S., Zhang, X., & Li, G. (2020). A snapshot of food supply chain in Wuhan under the COVID-19 pandemic. China Agricultural Economic Review, 12(4), 689–704. https://doi.org/10.1108/CAER-04-2020-0056

Mudambi, R., & Treichel, M. Z. (2005). Cash crisis in newly public Internet-based firms: An empirical analysis. Journal of Business Venturing, 20(4), 543–571. https://doi.org/10.1016/j.jbusvent.2004.03.003

Nerantzidis, M. (2015). Measuring the quality of the “comply or explain” approach: Evidence from the implementation of the Greek corporate governance code. Managerial Auditing Journal, 30(4/5), 373–412. https://doi.org/10.1108/MAJ-08-2014-1060

Nerantzidis, M., Pazarskis, M., Drogalas, G., & Galanis, S. (2022). Internal auditing in the public sector: A systematic literature review and future research agenda. Journal of Public Budgeting, Accounting & Financial Management, 34(2), 189–209. https://doi.org/10.1108/JPBAFM-02-2020-0015

Nerantzidis, M., & Tsamis, A. (2017). Going back to go forward: On studying the determinants of corporate governance disclosure. Corporate Governance, 17(3), 365–402. https://doi.org/10.1108/CG-07-2016-0145

Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M., & Agha, R. (2020). The socio-economic implications of the coronavirus pandemic (COVID-19): A review. International Journal of Surgery, 78, 185–193. https://doi.org/10.1016/j.ijsu.2020.04.018

OECD. (2020). OECD Economic Outlook, Interim Report March 2020. OECD Publishing, Paris. https://doi.org/10.1787/7969896b-en

Osma, B. G., & Guillamón-Saorín, E. (2011). Corporate governance and impression management in annual results press releases. Accounting, Organizations and Society, 36(4–5), 187–208. https://doi.org/10.1016/j.aos.2011.03.005

Papachristou, G., Papadamou, S., & Spyromitros, E. (2018). Asymmetric price responses to stock addition to and deletion from the Athens Stock Exchange Index. Managerial Finance, 44(4), 406–423. https://doi.org/10.1108/MF-12-2016-0350

Rahman, M. L., Amin, A., & Al Mamun, M. A. (2021). The COVID-19 outbreak and stock market reactions: Evidence from Australia. Finance Research Letters, 38, 101832. https://doi.org/10.1016/j.frl.2020.101832

Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-19. The Review of Corporate Finance Studies, 9(3), 622–655. https://doi.org/10.1093/rcfs/cfaa012

Sadka, R. (2011). Liquidity risk and accounting information. Journal of Accounting and Economics, 52(2–3), 144–152. https://doi.org/10.1016/j.jacceco.2011.08.007

Sikalidis, A., & Leventis, S. (2017). The impact of unrealized fair value adjustments on dividend policy. European Accounting Review, 26(2), 283–310. https://doi.org/10.1080/09638180.2016.1146153

Smith, R. D. (2006). Responding to global infectious disease outbreaks: Lessons from SARS on the role of risk perception, communication and management. Social Science & Medicine, 63(12), 3113–3123. https://doi.org/10.1016/j.socscimed.2006.08.004

Sultana, N., Singh, H., & Van der Zahn, J. L. M. (2015). Audit committee characteristics and audit report lag. International Journal of Auditing, 19(2), 72–87. https://doi.org/10.1111/ijau.12033

Vadasi, C., Bekiaris, M., & Andrikopoulos, A. (2021). Internal audit function quality and corporate governance: The case of Greece. Multinational Finance Journal, 25(1/2), 1–61.

Vo, X. V. (2018). Foreign ownership and corporate cash holdings in emerging markets. International Review of Finance, 18(2), 297–303. https://doi.org/10.1111/irfi.12130

Wasiuzzaman, S. (2014). Analysis of corporate cash holdings of firms in Malaysia. Journal of Asia Business Studies, 8(2), 118–135. https://doi.org/10.1108/JABS-10-2012-0048

Weimer, J., & Pape, J. (1999). A taxonomy of systems of corporate governance. Corporate governance: An International Review, 7(2), 152–166. https://doi.org/10.1111/1467-8683.00143

Wen, J., Kozak, M., Yang, S., & Liu, F. (2021). COVID-19: potential effects on Chinese citizens’ lifestyle and travel. Tourism Review, 76(1), 74–87. https://doi.org/10.1108/TR-03-2020-0110

Wieczorek-Kosmala, M. (2021). COVID-19 impact on the hospitality industry: Exploratory study of financial-slack-driven risk preparedness. International Journal of Hospitality Management, 94, 102799. https://doi.org/10.1016/j.ijhm.2020.102799

World Bank. (2020). The global economic outlook during the COVID-19 pandemic: A changed world. Retrieved September 3, 2020, from https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world

Wu, W., & Metcalf, J. P. (2014). Cigarette smoking and innate immune responses to influenza infection. World Journal of Immunology, 4(1), 20–25. https://doi.org/10.5411/wji.v4.i1.20

Yang, T., & Lau, S. T. (2010). An empirical investigation of Yankee stock offerings. Review of Quantitative Finance and Accounting, 34(3), 351–370. https://doi.org/10.1007/s11156-009-0135-x