Management practices and changes in turnover of domestic firms during the Covid-19 economic shock

Abstract

A recurring question of economic inquiry is how management and leadership practices affect the measurable, “objective” performance of firms. In this article we explore firm characteristics that, during the economic shock due to the COVID pandemic, made firms especially vulnerable, causing their revenues to drop more than expected. The analysis combines firm-level historical data and sector-level statistical data, and employs time-series analysis to estimate an “expected” level of shock on the firm level, based on the industry-level shock. This hypothetical outcome is then compared to observed values. We then search  for patterns between the management practices (reported before the COVID shock) of the individual firms and deviations between the observed and  “expected” revenue values. We use Fisher’s exact test and the Cochran-Armitage test for trends to identify management practices correlating with lower-than-expected outcomes. Our analysis finds that firms where owners participated in management, did not rely on external financing options, their leadership style was characterized less by a relationship-based approach and their digitalization readiness were lacking were overrepresented in the group of firms with lower erformance outcomes.