Examining the Effects of the COVID-19 Pandemic on Financial Statements: An Application to the BIST Textile Sector

Abstract

Purpose – The purpose of this study is to empirically examine the effects of the COVID-19 pandemic on the financial performance of firms operating in the textile sector and listed on Borsa Istanbul (BIST). Based on the assumption that the impact of the pandemic on firm profitability is not confined to a single period but varies over time, the analysis is conducted across three sub-periods: the pre-pandemic period (2016–2019), the pandemic period (2020–2021), and the post-pandemic period (2022–2023). By adopting a period-based comparative perspective, the study aims to contribute to the literature by revealing the dynamic nature of the pandemic’s effects and to provide insights into financial decision-making during crisis periods.
Design/methodology/approach – The study employs a panel data set covering the period 2016–2023 and consisting of 22 firms operating in the textile sector and listed on Borsa Istanbul. Firm financial performance is measured using return on assets, return on equity, and net profit margin. Financial leverage, firm size, liquidity level, and accounts receivable turnover are included as explanatory variables. A fixed effects panel data model is used for estimation. Driscoll–Kraay robust standard errors are applied for the full sample to address potential panel data issues, while heteroskedasticity-robust standard errors based on the conventional fixed effects approach are employed for sub-period analyses due to the short time dimension.
Results – The empirical findings indicate that the effects of the COVID-19 pandemic on the financial performance of textile firms differ significantly across periods. Financial leverage negatively affects profitability in the pre-pandemic and post-pandemic periods, while it exhibits a temporary positive effect during the pandemic period. The impact of firm size on profitability weakens and turns negative in the post-pandemic period in some models. Liquidity emerges as a key factor supporting firm performance, particularly in the post-pandemic period. Moreover, the effect of accounts receivable turnover is negative during the pandemic period but becomes positive in the post-pandemic period, highlighting changes in working capital management practices.
Discussion – The findings demonstrate that the impact of the COVID-19 pandemic on firm financial performance is neither uniform nor temporary, but rather period-dependent and dynamic. The temporary positive effect of leverage during the pandemic can be attributed to firms’ efforts to meet short-term liquidity needs, whereas the negative impact observed in the post-pandemic period reflects increased financial risk. The declining effect of firm size after the pandemic suggests that higher fixed costs and limited operational flexibility may disadvantage larger firms during recovery phases. The results related to accounts receivable turnover emphasize the critical role of working capital management in both crisis and post-crisis periods.