Product line transformation, foreign sales, and firm value: Evidence from COVID-19 pandemic governance in urban China

Liangliang Wang; Junli Yu; Kam C Chan

doi:10.1016/j.ribaf.2021.101487

Product line transformation, foreign sales, and firm value: Evidence from COVID-19 pandemic governance in urban China

Res Int Bus Finance. 2021 Dec:58:101487. doi: 10.1016/j.ribaf.2021.101487. Epub 2021 Jul 3.

Authors

Liangliang Wang¹, Junli Yu², Kam C Chan³

Affiliations

¹ School of Economics and Management, Southeast University, Nanjing, China.
² China Institute for Urban Governance/School of International and Public Affairs, Shanghai Jiao Tong University, Shanghai, China.
³ School of Accounting, Zhongnan University of Economics and Law, Wuhan, China.

Abstract

Using a sample of Chinese firms, we examine stock market reaction to firms that announce a change in their product lines to those related to COVID-19 management (medical masks and ventilators, among others). We find the market reacts positively to the announcements. In addition, when a firm ordinarily has a large share of export sales, the stock market reaction is more salient, indicating that export sales provide a certification effect that positively signals investors. Additional analysis on moderating effects suggest that, conditional on foreign sales, prior experience with medical product lines or less uncertainty about supply availability enhances the cumulative announcement returns (CARs), while the adverse impact of firm size on CAR magnifies.

Keywords: Announcement effect; COVID-19; Product line transformation; Urban governance.