COVID-19, firm exposure, and firm value: A tale of two lockdowns

Haoyuan Ding; Haichao Fan; Shu Lin

doi:10.1016/j.chieco.2021.101721

COVID-19, firm exposure, and firm value: A tale of two lockdowns

China Econ Rev. 2022 Feb:71:101721. doi: 10.1016/j.chieco.2021.101721. Epub 2021 Nov 24.

Authors

Haoyuan Ding¹, Haichao Fan², Shu Lin³

Affiliations

¹ College of Business, Shanghai University of Finance and Economics, Shanghai, China.
² Institute of World Economy, Fudan University, Shanghai, China.
³ Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong, China.

Abstract

We study how a public health crisis affects the corporate sector at different phases of outbreak. Using an event study approach, we find significant valuation effects in a sample of Chinese listed firms following two symbolic events in the outbreak of COVID-19: (1) the lockdown of Hubei province; and (2) the containment of the disease in China and its spread to overseas. Market responded negatively (positively) to the first (second) event. Regression analysis further reveals that, following the first event, firms with Hubei (foreign) exposures earned significantly lower (higher) returns. Foreign exposures, however, had significantly negative effects on returns following the second event. The valuation effects of Hubei and foreign exposures also vary across firm ownership and industries. Our results indicate that, in a globalized world, firms' international status, internal networks and input-output linkages all play important roles in determining their exposures to the pandemic.

Keywords: China; Covid-19; Firm exposures; Valuation effect.