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COVID-19 and going concern problem: empirical evidence from an emerging economy

Author

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  • Md. Rezaul Karim

    (University of Dhaka)

  • Samia Afrin Shetu

    (University of Dhaka)

Abstract

COVID-19 has shocked the whole economy, posing a substantial threat to the firm’s ability to continue operating. This paper intends to investigate whether the pandemic has worsened the going concern problem (GCP) for companies based in Bangladesh’s emerging economy, with a focus on listed textile companies from 2016 to 2021. Altman Z-score is used to measure the going concern problem, and COVID-19 is measured using a binary variable of 1 for 2019–2021 and 0 for 2016–2018 following prior research. Random-effect Generalized Least Square (GLS) regression is conducted based on the Hausman specification test, and results were explained through the triangulation of contingency theory and resource dependency theory. The article has documented that the pandemic has a statistically significant and negative connection with the Z-score, indicating a higher likelihood of going concern uncertainty in the textile sector. On average, Z-score exhibits a decrease of 1.63 point (or 12%) during the pandemic periods, ceteris paribus. This finding is robust to alternative measures of the going concern problem. Additionally, the study found that small and leveraged firms are more susceptible to going concern problems due to the pandemic compared to larger and unlevered firms. The study’s results have implications for companies, regulators, and the government in terms of policy and resource allocation to manage the effects of the pandemic. The research is unique in its methodology, findings, and contribution to addressing the research gap in this area.

Suggested Citation

  • Md. Rezaul Karim & Samia Afrin Shetu, 2023. "COVID-19 and going concern problem: empirical evidence from an emerging economy," SN Business & Economics, Springer, vol. 3(12), pages 1-22, December.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:12:d:10.1007_s43546-023-00589-z
    DOI: 10.1007/s43546-023-00589-z
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    More about this item

    Keywords

    COVID-19; Going concern problem; Z-score; Emerging economy; Bangladesh;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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