Crises, combined crises and their implications for firm profitability

This paper investigates how the interaction of distinct types of crises impacts firm profitability. Building on a taxonomy of combined crises, where up to four concomitant crises are considered (banking, currency, debt and recession), we estimate panel regressions of the main determinants of firm profitability for emerging and mature countries. Our results show that gross margin has a positive impact on firm profitability, especially in tranquil times. Leverage has a consistently negative impact on profitability, while for size a positive result is valid only in noncrisis periods. We found that the impact of other determinants, such as liquidity, external dependence, ownership and age, varies with the type of crisis and country. This study highlights the necessity of having more than one model to understand firm characteristics when explaining the impacts of crises on firm profitability. Previous profitability models are also indirectly validated, evidencing potential errors in model specification due to data selection. The findings of this investigation contribute to a growing literature showing that combinations of crises affect firm profitability differently from individual recessions or currency, banking or debt crises.