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

See all articles by Ender Demir

Ender Demir

Istanbul Medeniyet University

Gamze Ozturk Danisman

Kadir Has University

Date Written: February 10, 2021

Abstract

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

Demir, Ender and Danisman, Gamze Ozturk, Banking Sector Reactions to the COVID-19: The Role of Bank-Specific Factors and Government Policy Responses (February 10, 2021). Available at SSRN: https://ssrn.com/abstract=3628261 or http://dx.doi.org/10.2139/ssrn.3628261

Ender Demir (Contact Author)

Istanbul Medeniyet University ( email )

Cevizli Mahallesi, Gürbüz Sk. No:6,
İstanbul, 34685
Turkey

Gamze Ozturk Danisman

Kadir Has University ( email )

Istanbul
Turkey

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