WITH MANY young and healthy people falling victim to covid-19, it can sometimes seem as if the disease strikes indiscriminately. The truth, of course, is that some people are more vulnerable to the virus than others. So too with firms. As the pandemic swept across the globe, investors responded by dumping shares of weaker companies, and those most exposed to the virus.
Cash-rich firms weathered the storm better than those with less in liquid assets. All else being equal, the share prices of companies with more cash, larger profits and less debt were more resilient against the pandemic. A one-standard-deviation decrease in a firm’s cash-to-assets ratio was associated with an additional 6% drop in its stock return. A one-standard-deviation increase in its debt-to-assets ratio was associated with an extra 10% drop.
Firms were also penalised for circumstances largely beyond their control. Companies owned by hedge funds, for example, fared worse than those with corporate backers. Those based in poor countries also performed worse than those in richer ones, perhaps because health-care systems there are ill-equipped to cope with the public-health crisis. Finally, firms in countries with common-law legal traditions suffered bigger share-price declines than those in civil-law or socialist jurisdictions.
The right person, the right public debate square for the right world / 'Why doesn't anyone talk?' series / Upload. every Wednesday / My basics and past topics are in the profile. 38th W/T- Technological progress is getting new day by day, and is human always there?