Unveiling the pandemic's impact: Did COVID-19 drive business failures? A Cutting-Edge Analysis with Spatial Autoregressive Modelling

Abstract

The objective of this study is to estimate the impact of Covid-19 on business behavior and its spatial effect among companies. Four specifications have been developed to analyze the pandemic's influence on key variables determining business behavior: liquidity, indebtedness, profitability, and efficiency. This study has focused on the province of Barcelona, Spain, from which a database of failed and non-failed companies has been compiled, both before and after the pandemic. The models have been estimated using the spatial Seemingly Unrelated Regressions (SUR) methodology, and each equation was estimated following a spatial Differences-in-Differences model. The results confirm that the emergence of Covid-19 has had a significant impact on companies' financial ratios, worsening their positions in terms of liquidity, indebtedness, and efficiency, with the existence of a spatial contagion pattern.