Geopolitical / Operational Resilience / Pension Hub / Risk Management Practices

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


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.