Corporate immunity to the COVID-19 pandemic

Abstract

We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.

Keywords: CSR; Corporate governance; Corporate resilience; Financial risk; Supply chain.

Fig. 1

COVID-19 cases per capita. This figure shows cumulative confirmed COVID-19 cases per one million people in each economy as of May 22, 2020. Darker colors indicate more cases per capita. Gray indicates that no data are available. Source: Johns Hopkins University, Center for Systems Science and Engineering.

Fig. 2

Evolution of cumulative COVID-19 cases per capita by economy. This figure depicts the cumulative number of COVID-19 cases per one million people for selected economies. The y-axis denotes the cumulative number of confirmed cases per one million people in an economy. The x-axis denotes the number of days since an economy reached one confirmed case (per million). Source: Johns Hopkins University, Center for Systems Science and Engineering.

Fig. 3

Stock market returns since the spread of COVID-19. This figure plots the cumulative stock market returns since January 17, 2020 for selected economies. Cumulative returns are calculated from the value-weighted market index in each economy. Source: Thomson Reuters.

Fig. 4

Global supply chain and customer exposure to COVID-19, International Business Machines (IBM). This figure illustrates a firm's exposure to COVID-19 through its global supply chain and customer locations. Using IBM as an example, Panel A shows the company's suppliers in 2019. The lines denote connections between the headquarters of IBM and the location of each of its suppliers. Each node represents a supplier in the supply chain network. Panel B shows IBM's revenues by country in 2019. The lines denote connections between the headquarters of IBM and the country of its customers. Each node represents a country to which the firm sells its products, and the size of the node represents the relative proportion of the firm's pre-pandemic revenues in a country. Similar to Fig. 1, this figure plots the cumulative coronavirus cases per one million people reported in each economy at the end of May 2020. Darker colors indicate more confirmed cases per capita. Gray indicates that no data are available. Source: FactSet Revere; Johns Hopkins University, Center for Systems Science and Engineering. Panel (a): Firm global suppliers, IBM, Panel (b): Firm global customers, IBM.

Fig. 5

Global supply chain and customer exposure to COVID-19, General Electric (GE). This figure illustrates a firm's exposure to COVID-19 through its global supply chain and customer locations. Using GE as an example, Panel A shows the company's suppliers in 2019. The lines denote connections between the headquarters of GE and the location of each of its suppliers. Each node represents a supplier in the supply chain network. Panel B shows GE's revenues by country in 2019. The lines denote connections between the headquarters of GE and the country of its customers. Each node represents a country to which the firm sells its products, and the size of the node represents the relative proportion of the firm's pre-pandemic revenues in a country. Similar to Fig. 1, this figure plots the cumulative coronavirus cases per one million people reported in each economy at the end of May 2020. Darker colors indicate more confirmed cases per capita. Gray indicates that no data are available. Source: FactSet Revere; Johns Hopkins University, Center for Systems Science and Engineering. Panel (a): Firm global suppliers, GE, Panel (b): Firm global customers, GE.

Fig. 6

COVID-19 cases and stock market returns. This figure presents the relation between stock market returns and the growth rate of COVID-19 cases using the cross-economy panel data during the weeks from January 3, 2020 through May 22, 2020. The x-axis denotes the weekly growth of COVID-19 cases, and the y-axis represents weekly stock market returns. We divide the x-axis into one hundred bins, with each bin having an equal width, so that the first bin has observations with 0 to 3% weekly growth of COVID-19 cases, the second bin has observations with 4 to 7% weekly case growth, and the one-hundredth bin has observations of between 396 and 399% weekly case growth. Each bin does not contain an equal number of observations. Each dot represents the average weekly stock market return across observations within each bin. The dashed line is the linear fitted line.