Finance: Research, Policy and Anecdotes

With Burton Flynn and Mikael Homanen, my current and former PhD students, respectively, I just published another COVID-19 paper, this time on the impact of the COVID-19 crisis on firms in emerging markets and their reaction.

Using survey responses across 488 listed firms in 10 emerging markets from early April, we find that the vast majority of firms were negatively affected by COVID-19. Firms have reacted primarily reducing investment spending and much less through layoffs. Meanwhile, some firms cut back on executive compensation, and more firms expanded employee benefits than cut them. The large majority of firms have acted before their governments imposed measures and there is a surprising degree of support vis-à-vis employees, customers, other stakeholders and broader society, in line with hypotheses stressing the importance of informal long-term relationships in emerging markets. Although stock prices initially reacted to the impact of the crisis, delayed stock price reactions suggest evidence of inefficient markets. Furthermore, we find evidence that stakeholder-centric firms (which showed flexibility vis-à-vis business partners and made donations related to the pandemic) experienced lower stock price declines during the crisis drawdown, suggesting that the financial markets valued these stakeholder-centric corporations more than their counterparts during the crisis.

This paper was made possible by ground work of Burton who is in his real job is a portfolio managers of a Finnish-based emerging markets fund, spending a month each between June 2019 and March 2020 in ten emerging markets and requested one-on-one private meetings with the CEOs of almost 1,500 listed firms.  Expect more great research with data from these meetings!

And if you are interested in Burton’s travel collecting all these great data, check out his journal: https://www.terranovaca.com/journal

Overview