The Impact of COVID-19 on Earnings and Earnings Persistence: Evidence from Publicly Traded U.S. Firms Across Selected Industries (Journal of Applied Business and Economics)

Summary

• The study uses quarterly data from 2018–2023 for four U.S. industries: airlines, hotels, pharmaceutical manufacturing and communications equipment manufacturing.p.1
• Airline earnings declined significantly from 2.1% before COVID-19 to −1.2% during the pandemic and had only recovered to 0.2% in the post-COVID period.p.10
• Hotel earnings fell from 2.6% to 0.5% during the pandemic but averaged 2.6% afterwards, nearly identical to the pre-COVID level.p.10
• Pharmaceutical earnings rose from 2.5% to 3.7% and communications equipment from 0.7% to 1.6% during COVID-19, but not significantly.p.9
• The final samples comprise 10 airline firms, 13 hotel firms, 10 communications equipment firms and 18 pharmaceutical firms.p.6
• Earnings persistence increased significantly only in the hotel industry (β₃ = 0.393), while the airline change was not significant (β₃ = 0.138).p.12

Key insights

1. Real GDP declined by 3.5% in 2020, the first U.S. economic contraction since the 2008 Financial Crisis.p.1
2. The pharmaceutical manufacturing industry maintained relatively strong and stable earnings and generally had the highest earnings levels of the four industries.p.9
3. Airlines experienced the most severe and persistent earnings decline, with earnings still significantly below pre-pandemic levels at 0.2%.p.10
4. The hotel industry recovered quickly, with post-pandemic earnings averaging 2.6%.p.10
5. Baseline earnings persistence for airlines was β₁ = 0.470, and for hotels β₁ = 0.322.p.12
6. Earnings are defined as operating income scaled by lagged total assets, aggregated to the industry level.p.13