Banking Sector Reactions to the COVID-19: The Role of Bank-Specific Factors and Government Policy Responses
30 Pages Posted: 16 Jun 2020 Last revised: 10 Feb 2021
Date Written: February 10, 2021
This paper examines the impact of bank-specific factors and variation in the stringency of government policy responses on bank stock returns as a response to the COVID-19 pandemic. We use a sample of 1927 publicly listed banks from 110 countries for the period of the first major wave of the COVID-19: January to May 2020. Our findings indicate that stock returns of banks with higher capitalization, more diversification, higher deposits, lower non-performing loans, and larger size are more resilient to the COVID-19 pandemic. While the environment and governance scores of banks do not have a significant impact, higher social and corporate social responsibility (CSR) strategy scores of banks intensify the negative stock price reaction to the COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt &contract relief, and fiscal measures from governments.
Keywords: COVID-19, Banking Industry, Immunity, Stock Return, Government Policy Responses, ESG Scores
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation