Online Sales and Firm Resilience

Abstract

Using firm-linked transaction data we document that firms with a higher percentage of online sales (online presence) have lower sensitivity to aggregate shocks. For the average firm in our sample, a one standard deviation increase in online presence reduces the sensitivity of their sales to aggregate shocks by 19%. This effect is stronger for smaller firms but it is statistically and economically significant for all quartiles of the size distribution. Interestingly, the lower sensitivity is concentrated among firms with online share above the median, suggesting a non-linear relationship. We further document that this effect remains present in the aftermath of the COVID-period, although its economic magnitude is slightly smaller. We use data on regional variation in internet connectivity to construct an instrument for firm online presence. Using this instrument we find that the relationship is only statistically significant for firms with below-median sales. Finally, for the sub-sample of traded firms, we show that this lower cash-flow sensitivity is also reflected in lower return volatility. A one standard deviation increase in online share is associated with a 9.6% (18.5 basis points) decrease in daily stock return volatility. Consistent with our IV regressions this effect doubles to 15.6% (31 basis points), when we consider firms with below-median sales only.

Keywords: Online presence, Cash-flow sensitivity, Stock return volatility

JEL Classification: D12, G10, G00, L81