Modelling the Impact of COVID-19 on SMEs’ Performance: Econometrics Evidence from Sri Lanka

COVID-19 has created severe health issues while creating drastic impacts on global economy and thus the World Health Organization (WHO) announced a global emergency condition as well. These adverse impacts of COVID-19 are more substantial especially in business sectors in least developed and developing countries. Hence, the current study attempts to examine the impact of COVID-19 on SMEs’ performance in Sri Lanka, highlighting the differences in SMEs’ performance between pre-COVID-19 and during COVID-19 periods. The study based on primary data collected from 304 SMEs located in nine provinces of Sri Lanka and both descriptive and econometrics analyses were employed to accomplish the objectives of the study. The statistical investigation based on t-test analysis clearly indicates that there is a statistically significant difference in SMEs’ performance between pre-COVID-19 and during COVID-19 periods. More specifically, both financial and operational performance have reduced while increasing the innovative performance during the COVID-19 period compared to Pre-COVID-19 period. Moreover, the econometrics analysis confirms that SMEs affected by COVID-19 account for lower performance compared to those are not affected by COVID-19. More specifically, negative impact on SMEs performance gets higher when the magnitude of COVID-19 impacts increases. Hence, it is apparent that COVID-19 has drastically affected the SMEs’ performance in Sri Lanka. Thus, the present study strongly recommends implementation of proactive policies to re-emerge SMEs while SMEs should themselves organize to battle with the COVID-19 outbreak.