Do Sustainable Firms Show Resilience during Crisis

Abstract

Any crisis can negatively impact firms on a high scale every time. This is due to the unforeseen nature of such an occurring and lack of preparation for the time of crisis. Covid-19 had a tremendous impact on the businesses of all sectors. In this study, we check whether sustainable firms tend to be resilient during the times of crisis. A six-year data from 2016-2021 of a sample of 30 US firms from the Energy sector has been taken to check whether sustainability is dependent upon financial performance and financial stability of companies. By establishing a relationship between financial performance and financial stability of firms, we have checked whether sustainability is dependent upon it. ESG scores are taken to measure sustainability while ROA, ROE and quick ratio are used to measure financial performance and financial stability of companies. A dummy variable of Crisis is taken which takes the value of 1 in 2020 due Covid-19 and 0 in the other years. The results have shown that sustainability is dependent on ROE and quick ratio of firms in a positive way while ROA impacts a company’s sustainability in a negative way. This is because more a company has assets, the more it is going to reduce the net income. This is due to the utilization of income in the fixed assets needed in the energy sector i.e. expensive machinery. The scatter plots show that the companies show resilience during Covid-19 as the financial performance of all the companies remain more or less the same