![]() EKONOMISTI
The international scientific and analytical, reviewed, printing and electronic journal of Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University ![]() |
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Journal number 3 ∘
Papuna Gikorashvili ∘
The Impact of the COVID-19 Pandemic on the Capital Structure of the Georgian Wine Industry: A Financial Stability Analysis, 2019–2023 Expanded Summary The COVID-19 pandemic created unprecedented financial pressure across global industries, with export-dependent sectors bearing the brunt of the shock. One such sector is Georgia’s wine industry—an economic pillar that not only drives rural employment but also represents one of the country’s most recognized international products. This study examines how wine-producing firms in Georgia restructured their capital profiles during and after the COVID-19 crisis, highlighting the adjustments in leverage, profitability, and financial resilience between 2019 and 2023. The research is based on a longitudinal panel dataset covering 47 wine-producing firms that met specific criteria: annual revenues above 500,000 GEL, continuous financial data availability across the study period, and active engagement in wine exports. To ensure robustness, extreme outliers were removed using Tukey’s method, and the final dataset was subjected to multiple analytical techniques, including descriptive analysis, Mann-Kendall trend testing, fixed effects regression, and Chow’s structural break test. A novel "Resilience Index" was also developed, combining changes in debt and profitability levels, to measure firm-level adaptability during systemic shocks. What makes this period analytically rich is not just the external disruption itself, but the way Georgian wine companies responded. Contrary to what classical financial theories might suggest during a crisis, these firms did not increase their debt burden to offset revenue losses. Instead, they reduced their leverage, signaling a shift toward risk aversion and capital preservation. The median solvency ratio dropped from 2.29 in 2019 to 1.75 in 2023, and the debt-to-assets ratio decreased from 56.3% to 42.8%. These changes occurred even as profitability indicators—Return on Assets (ROA), Return on Equity (ROE), and net margins—plummeted. For example, ROE turned negative in 2023, and net margins fell from 13.4% in 2019 to –0.9%. This seemingly counterintuitive behavior—reducing debt while profits decline—reveals a deliberate strategic shift. Firms prioritized financial survivability over short-term earnings, suggesting that during high-uncertainty environments, the Trade-Off Theory may evolve to accommodate resilience as a primary goal. Firms essentially traded off potential profit for lower financial risk exposure. The introduction of the Resilience Index allows this behavior to be quantified and differentiated across firm sizes. Interestingly, smaller firms, though more vulnerable, were quicker to implement aggressive deleveraging and cost control measures, while larger firms attempted to maintain operational scale through state support and retained earnings. The role of government support during this period cannot be overstated. Through a combination of grape subsidies, interest rate co-financing, and export incentives, the state injected roughly 15 million GEL into the wine sector between 2020 and 2023. While not all firms accessed this assistance equally, the policy interventions were crucial in maintaining systemic stability and preventing a wave of bankruptcies. However, these mechanisms also exposed weaknesses in the policy framework, particularly regarding the equitable distribution of aid and the lack of structural modernization incentives. Beyond descriptive statistics and financial ratios, the study offers broader theoretical and policy contributions. It proposes that financial resilience, as a concept, needs deeper integration into corporate finance discussions, particularly for firms operating in volatile environments or emerging markets. Traditional theories often focus on optimal capital structure for value maximization. This study argues that, during extreme external shocks, the definition of “optimal” must be recontextualized to include survivability, liquidity buffers, and the ability to absorb policy lags. At the regional level, the findings offer a lens through which to understand the divergence in crisis responses. While European wine producers in France and Italy often leaned on credit expansions and stimulus packages, Georgian producers moved toward defensive financial positioning—more akin to trends seen in South Africa, India, or Latin America. This underscores the role of financial culture, market maturity, and institutional support in shaping capital decisions under duress. In terms of practical takeaways, the study recommends that firms maintain debt-to-asset ratios below 40%, diversify export markets beyond Russia, and reinvest in product innovation and value addition. The government, in turn, should institutionalize responsive crisis mechanisms, foster financial literacy among small producers, and use wine diplomacy as a soft-power tool to access new markets. In summary, the Georgian wine industry did not collapse under the weight of the COVID-19 crisis—it adapted. While profitability declined, capital structures became more conservative, and firms embraced resilience over risk. This adaptive behavior offers a template for how export-reliant sectors in emerging economies might navigate future global disruptions. The lessons are clear: in times of crisis, survival is a strategy—and resilience is its currency. Keywords: capital structure, COVID-19, wine industry, financial sustainability, Georgia |