Regulations as Automatic Stabilizers During COVID-19

60 Pages Posted: 15 Jun 2020 Last revised: 17 Aug 2020

See all articles by Xi Wu

Xi Wu

University of California, Berkeley - Haas School of Business

Date Written: May 15, 2020

Abstract

This paper shows that regulations are automatic stabilizers for firms in the COVID-19 crisis. During the pandemic, more heavily regulated companies had stock and corporate bond returns that were four to five percent higher than less regulated firms. Prior to the crisis, highly regulated firms held more cash, had lower leverage, and were less likely to pay dividends, making them more resilient to extreme market conditions. More regulated firms also had lower systematic risk exposures during the crisis. Similar effects of regulations are found in the 2008 Financial Crisis. Furthermore, regulations on average do not lead to inferior stock returns.

Keywords: Regulation, COVID-19, Valuation, Risk

JEL Classification: G01, G14, G18, M48

Suggested Citation

Wu, Xi, Regulations as Automatic Stabilizers During COVID-19 (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3624592 or http://dx.doi.org/10.2139/ssrn.3624592

Xi Wu (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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