Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

Ender Demir; Gamze Ozturk Danisman

doi:10.1016/j.ribaf.2021.101508

Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

Res Int Bus Finance. 2021 Dec:58:101508. doi: 10.1016/j.ribaf.2021.101508. Epub 2021 Aug 10.

Authors

Ender Demir¹, Gamze Ozturk Danisman²

Affiliations

¹ Department of Business Administration, School of Social Sciences, Reykjavik University, Reykjavik, Iceland.
² Faculty of Economics, Administrative and Social Sciences, Kadir Has University, Istanbul, Turkey.

Abstract

This paper examines the impact of bank-specific factors and variations in the context of stringency of government policy responses on bank stock returns because of the COVID-19 pandemic. A sample of 1,927 publicly listed banks from 110 countries is used for the period of the first major wave of COVID-19, that is, January to May 2020. Our findings indicate that stock returns of banks with higher capitalization and deposits, more diversification, lower non-performing loans, and larger size are more resilient to the pandemic. While banks' environment and governance scores do not have a significant impact, higher social and corporate social responsibility strategy scores intensify the negative stock price reaction to 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 and contract relief, and fiscal measures from governments.

Keywords: Banking industry; COVID-19; Environmental; Governance (ESG) scores; Government policy responses; Immunity; Social; Stock return.