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What made some listed companies more resilient to the COVID-19 crisis?

by wrich

By Alexandre Garel, Audencia

The COVID-19 pandemic crisis differs from previous market crises by its cause, scope, and severity. Unlike previous global financial crises, the COVID-19 crisis was exogenous to the stock market, it did not originate from the financial sector. It affected all stock markets around the world within a short time frame with the major indexes losing between 25% – 40% of their value, and countless companies severely affected, although some were more resilient than others to the shock.

From an investor’s perspective, knowing which characteristics particularly expose companies to a drop in value in time of crisis can help to weather the storm. So, what made some listed companies more resilient to the COVID-19 crisis than others?

Systematic risk exposure
The greater a firm’s exposure to market-wide systematic risk, the higher the impact on its cashflows will be when a risk materialises. A standard measure of a company’s exposure to market-wide risk is the Capital Asset Pricing Model (CAPM) beta. Empirical studies find that the higher the CAPM beta, the greater the drop in stock prices is in the COVID-19 crisis[1].

Companies from several sectors were particularly affected by the COVID-19 crisis. For instance, international travel bans particularly impacted the travel and entertainment industries, the so-called BEACH stocks, creating a sharp fall in their current and expected cashflows and a much lower valuation relative to other sectors.

Financial flexibility
A firm is more financially flexible if it holds more cash, has less debt due within a year, and has less leverage measured by long-term debt over assets. US firms with high financial flexibility experienced a stock price drop lower by 26% than those with low financial flexibility on average[2].

Supply chain
Companies less exposed to COVID-19 through global supply chains and customer locations performed relatively better.[3] Initially, international firms, especially those trading with China, underperformed.[4]


Performance during the crisis was also affected by the ownership composition of companies. The stock returns of companies controlled by families, large corporations and governments performed better than those controlled by hedge funds and asset management companies. [5]

Evidence on the role of CSR (Corporate Social Responsibility) in the COVID-19 crisis is mixed. Arguably, firms with higher CSR enjoy a greater trust from investors and have stronger links with their customers and employees[6], which, in times of crisis, may shield them from drops in market value. Consistently, some studies document a positive relationship between CSR and a firm’s performance in the COVID-19 crisis[7]. Notice that the empirical findings on the association between CSR and returns in the COVID-19 crisis depend on how CSR is measured and what empirical methodology is used. Other studies present evidence that CSR offers no such positive explanatory power for returns during the COVID crisis[8].

Environmental responsibility
More specifically on environmental responsibility, in a recently published paper co-authored with Arthur Petit-Romec, we argue that the COVID-19 crisis acted as a wake-up call pushing investors to reassess the likelihood and potential magnitude of other major long-term environmental risks such as climate change[9]. Consistently, we find that, in the US, companies with higher environmental responsibility scores performed relatively better than other companies, whereas this is not the case for companies with higher social responsibility scores.

[1] See the studies cited in this article.
[2] Fahlenbrach, R., Rageth, K., & Stulz, R. M. (2020). How Valuable is Financial
Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis (No. 27106).
National Bureau of Economic Research, Inc.
[3] Ding, W., Levine, R., Lin, C., & Xie, W. (2021). Corporate immunity to the COVID-19
pandemic. Journal of Financial Economics.
[4] Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-
19. Review of Corporate Finance Studies, 9(3).
[5] Ding et al. (2021)
[6] Albuquerque, R., Koskinen, Y., & Zhang, C. (2019). Corporate social responsibility
and firm risk: Theory and empirical evidence. Management Science, 65(10), 4451-4469.

Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm
performance: The value of corporate social responsibility during the financial
crisis. Journal of Finance, 72(4), 1785-1824.
[7] Ding, W., Levine, R., Lin, C., & Xie, W. (2021). Corporate immunity to the COVID-19
pandemic. Journal of Financial Economics.  Albuquerque, R., Koskinen, Y., Yang, S., &
Zhang, C. (2020). Resiliency of environmental and social stocks: An analysis of the
exogenous COVID-19 market crash. The Review of Corporate Finance Studies, 9(3),
[8] Demers, E., Hendrikse, J., Joos, P., & Lev, B. (2020). ESG didn’t immunize stocks
against the COVID-19 market crash. Available at SSRN 3675920. Bae, K. H., El Ghoul,
S., Gong, Z. J., & Guedhami, O. (2021). Does CSR matter in times of crisis? Evidence
from the COVID-19 pandemic. Journal of Corporate Finance, 67, 101876.
[9] Garel, A., & Petit-Romec, A. (2021). Investor rewards to environmental responsibility:
Evidence from the COVID-19 crisis. Journal of Corporate Finance, 68, 101948.

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