Governmental Responses and Firm Performance During the Pandemic: An Integrated Assessment

  • Edina Berlinger, Department of Finance, Corvinus University of Budapest, Hungary
  • Dieter Gramlich, Baden-Wuerttemberg Cooperative State University Heidenheim (DHBW), Germany
  • Thomas Walker, John Molson School of Business, Concordia University, Montreal, Canada
  • Yunfei Zhao, John Molson School of Business, Concordia University Montreal, Canada
Ottawa Canadian Parliament bulidng on a sunny day

Executive Summary

Using data from 180 countries and 24,833 publicly traded firms around the world, this study examines how cultural and political factors influence the stringency of a government’s response to the COVID-19 pandemic and, in turn, the stock prices of firms and industries operating in a given country. Prior research demonstrates that government behaviour during a pandemic can directly or indirectly affect stock prices; we explore the factors influencing government policies, including a total of twelve political and cultural characteristics. We contribute new evidence about the interaction between a country’s political and cultural environment and the stringency of its government responses to the pandemic. We find that democratically elected governments, coalition governments, and governments that are not battling for re-election employ stricter responses to the pandemic, which has a negative impact on corporate abnormal returns. We do not have sufficient evidence that countries with cultures that prioritize collectivism and long- term orientation have tighter outbreak control. Our study has important policy implications and offers valuable insights to investors: no single political system or cultural characteristic appears to provide an absolute advantage for managing an epidemic. Rather, various trade-offs need to be balanced for an effective optimal solution depending on the national context. Firms operating in countries whose governments successfully do so tend to outperform.