When the Market Went Viral: COVID-19, Stock Returns, and Firm Characteristics

59 Pages Posted: 15 Jun 2020 Last revised: 3 Aug 2020

See all articles by Avijit Bansal

Avijit Bansal

Indian Institute of Management Calcutta

Balagopal Gopalakrishnan

Indian Institute of Management Ahmedabad

Joshy Jacob

Indian Institute of Management (IIM), Ahmedabad

Pranjal Srivastava

Indian Institute of Management Ahmedabad; University of Aberdeen - Business School

Date Written: June 21, 2020

Abstract

We examine how the market valuation of firms varies on account of characteristics that make them vulnerable to the COVID-19 pandemic across different stages of the crisis. Using plant location data that uniquely identify the vulnerability of firms to operational disruptions, we find that firms with plants located in zones susceptible to higher infections earn substantially lower returns. Firms unaffiliated to any business group earn lower returns compared to affiliated firms, implying their lower access to shared resources. Affirming the role of liquidity in weathering the crisis, the marginal value of financial flexibility is higher for firms with facilities in vulnerable zones and unaffiliated firms. We also find that firms with higher inflexibility in re-scaling operations earn lower returns. We also document that the signaling value of insider buying increases during the pandemic when information on the firm-level impact is scarce. The paper identifies unique channels through which this pandemic impacts the market value of firms.

Keywords: COVID-19; Operating leverage; Financial flexibility; Insider trading; Group affiliation; India

JEL Classification: G14, G31, G32, D81, G41

Suggested Citation

Bansal, Avijit and Gopalakrishnan, Balagopal and Jacob, Joshy and Srivastava, Pranjal, When the Market Went Viral: COVID-19, Stock Returns, and Firm Characteristics (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=3626273 or http://dx.doi.org/10.2139/ssrn.3626273

Avijit Bansal

Indian Institute of Management Calcutta ( email )

Kolkata, 700104
India

HOME PAGE: http://www.avijitbansal.com

Balagopal Gopalakrishnan

Indian Institute of Management Ahmedabad ( email )

D-1508 IIM Old campus
Vastrapur
Ahmedabad, 380015
India

Joshy Jacob (Contact Author)

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Pranjal Srivastava

Indian Institute of Management Ahmedabad

India
+447476789700 (Phone)

University of Aberdeen - Business School ( email )

Business School
Aberdeen, Scotland AB15 5LQ
United Kingdom

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