Which firm traits contributed to resilience amid the COVID-19 crisis?
Wenzhi Ding, Ross Levine, Chen Lin, and Wensi Xie analyse how various corporate characteristics influenced stock price reactions to the COVID-19 pandemic in their "Corporate immunity to the COVID-19 pandemic" article.
They analysed over 6,700 firms representing more than 90% of global stock market capitalisation to identify which firm traits contributed to resilience during this unprecedented period and conclude:
- Companies with robust CSR practices prior to the pandemic showed stronger stock performance, probably explained by more stable and flexible stakeholder relationships.
- Firms with stronger pre-pandemic financial conditions (e.g. cash reserves, greater access to credit, less debt, and longer debt maturities) experienced better stock performance during the COVID-19 pandemic.
- Firms with significant exposure to international supply chains and customer bases in regions heavily affected by COVID-19 saw greater declines in stock prices.
- Firms with more entrenched executives, as indicated by antitakeover provisions, were penalised by the market, as if they were perceived as less adaptable.
- Stock markets positively valued small managerial ownership levels, which align incentives, but negatively valued high levels, which may lead to entrenchment issues.
- Government-controlled and large corporation-controlled firms also performed well, benefiting from perceived stability and resource availability.
- Family-controlled firms, especially those with direct holdings and non-family managers, demonstrated better resilience.
- Conversely, firms with significant hedge fund ownership experienced worse stock returns.
- Stock markets reacted positively to national policies promoting social distancing and fiscal stimulus while pre-pandemic country traits like government indebtedness and economic development had less impact on stock price resilience.
The study provides insights into the role of financial conditions, supply chain and customer exposure, CSR activities, corporate governance, and ownership structure in crisis resilience.
The study's focus on stock market reactions may however not reflect broader economic impacts or long-term resilience, especially considering other potentially critical factors such as innovation and adaptability have been overlooked.