IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v44y2022ics1544612321001185.html
   My bibliography  Save this article

Firm efficiency and stock returns during the COVID-19 crisis

Author

Listed:
  • Neukirchen, Daniel
  • Engelhardt, Nils
  • Krause, Miguel
  • Posch, Peter N.

Abstract

We investigate the relationship between firm efficiency and stock returns during the COVID-19 pandemic. We find that highly efficient firms experienced at least 9.44 percentage points higher cumulative returns during the market collapse. A long-short portfolio consisting of efficient and inefficient firms would have also yielded a significantly positive weekly return of 3.53% on average. Overall, our results show that firm efficiency has significant explanatory power for stock returns during the crisis period.

Suggested Citation

  • Neukirchen, Daniel & Engelhardt, Nils & Krause, Miguel & Posch, Peter N., 2022. "Firm efficiency and stock returns during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001185
    DOI: 10.1016/j.frl.2021.102037
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612321001185
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2021.102037?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tuomo Vuolteenaho, 2002. "What Drives Firm‐Level Stock Returns?," Journal of Finance, American Finance Association, vol. 57(1), pages 233-264, February.
    2. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    3. Augustin Landier & David Thesmar & Jeffrey Pontiff, 0. "Earnings Expectations during the COVID-19 Crisis," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 598-617.
    4. Koetter, Michael & Karmann, Alexander & Fiorentino, Elisabetta, 2006. "The cost efficiency of German banks: a comparison of SFA and DEA," Discussion Paper Series 2: Banking and Financial Studies 2006,10, Deutsche Bundesbank.
    5. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-263, October.
    6. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    7. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    8. Nils Engelhardt & Miguel Krause & Daniel Neukirchen & Peter Posch, 2020. "What Drives Stocks during the Corona-Crash? News Attention vs. Rational Expectation," Sustainability, MDPI, vol. 12(12), pages 1-12, June.
    9. Michel A. Habib & Alexander Ljungqvist, 2005. "Firm Value and Managerial Incentives: A Stochastic Frontier Approach," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2053-2094, November.
    10. Zhang, Dayong & Hu, Min & Ji, Qiang, 2020. "Financial markets under the global pandemic of COVID-19," Finance Research Letters, Elsevier, vol. 36(C).
    11. Stefano Ramelli & Alexander F. Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," Swiss Finance Institute Research Paper Series 20-12, Swiss Finance Institute.
    12. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    13. Contessi, Silvio & De Pace, Pierangelo, 2021. "The international spread of COVID-19 stock market collapses," Finance Research Letters, Elsevier, vol. 42(C).
    14. Stefano Ramelli & Alexander F Wagner, 0. "Feverish Stock Price Reactions to COVID-19," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 622-655.
    15. Viral V Acharya & Sascha Steffen, 0. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 430-471.
    16. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    17. Rui Albuquerque & Yrjo Koskinen & Shuai Yang & Chendi Zhang, 2020. "Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 593-621.
    18. Jim Goldman & Philip Strahan, 2020. "Government as Customer of Last Resort: The Stabilizing Effects of Government Purchases on Firms," Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 610-643.
    19. Zaremba, Adam & Kizys, Renatas & Aharon, David Y. & Demir, Ender, 2020. "Infected Markets: Novel Coronavirus, Government Interventions, and Stock Return Volatility around the Globe," Finance Research Letters, Elsevier, vol. 35(C).
    20. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    21. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    22. Nguyen, Giao X. & Swanson, Peggy E., 2009. "Firm Characteristics, Relative Efficiency, and Equity Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(1), pages 213-236, February.
    23. Fama, Eugene F, 1990. "Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
    24. Cepoi, Cosmin-Octavian, 2020. "Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil," Finance Research Letters, Elsevier, vol. 36(C).
    25. Avanidhar Subrahmanyam & Sheridan Titman, 2001. "Feedback from Stock Prices to Cash Flows," Journal of Finance, American Finance Association, vol. 56(6), pages 2389-2413, December.
    26. Augustin Landier & David Thesmar, 2020. "Earnings Expectations in the COVID Crisis," NBER Working Papers 27160, National Bureau of Economic Research, Inc.
    27. Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 430-471.
    28. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    29. Bart Frijns & Dimitris Margaritis & Maria Psillaki, 2012. "Firm efficiency and stock returns," Journal of Productivity Analysis, Springer, vol. 37(3), pages 295-306, June.
    30. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    31. Rui Albuquerque & Yrjo Koskinen & Shuai Yang & Chendi Zhang, 0. "Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 593-621.
    32. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
    33. Wagner, Alexander F. & Ramelli, Stefano, 2020. "Feverish Stock Price Reactions to COVID-19," CEPR Discussion Papers 14511, C.E.P.R. Discussion Papers.
    34. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Silva, Thiago Christiano & Wilhelm, Paulo Victor Berri & Tabak, Benjamin Miranda, 2022. "The role of non-critical business and telework propensity in international stock markets during the COVID-19 pandemic," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    2. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Jin, Chengsheng & Cong, Zhenglong & Dan, Zhen & Zhang, Tidong, 2023. "COVID-19, CSR, and performance of listed tourism companies," Finance Research Letters, Elsevier, vol. 57(C).
    4. Fasano, Francesco & Javier Sánchez-Vidal, F. & La Rocca, Maurizio, 2022. "The role of government policies for Italian firms during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 50(C).
    5. Yan Wang, 2022. "Does Governance Quality Matter for the Selection of Policy Stringency to Fight COVID-19?," IJERPH, MDPI, vol. 19(11), pages 1-14, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nils Engelhardt & Jens Ekkenga & Peter Posch, 2021. "ESG Ratings and Stock Performance during the COVID-19 Crisis," Sustainability, MDPI, vol. 13(13), pages 1-15, June.
    2. Cakici, Nusret & Zaremba, Adam, 2021. "Who should be afraid of infections? Pandemic exposure and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    3. Neukirchen, Daniel & Engelhardt, Nils & Krause, Miguel & Posch, Peter N., 2023. "The value of (private) investor relations during the COVID-19 crisis," Journal of Banking & Finance, Elsevier, vol. 147(C).
    4. Rahman, Md Lutfur & Al Mamun, Mohammed Abdullah, 2021. "How resilient are the Asia Pacific financial markets against a global pandemic?," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    5. Michal Bernardelli & Zbigniew Korzeb & Pawel Niedziolka, 2021. "The banking sector as the absorber of the COVID-19 crisis’ economic consequences: perception of WSE investors," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 335-374, June.
    6. Demir, Ender & Danisman, Gamze Ozturk, 2021. "Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses," Research in International Business and Finance, Elsevier, vol. 58(C).
    7. Xiaoling Chu & Chiuling Lu & Desmond Tsang, 2021. "Geographic Scope and Real Estate Firm Performance during the COVID-19 Pandemic," JRFM, MDPI, vol. 14(7), pages 1-16, July.
    8. Garel, Alexandre & Petit-Romec, Arthur, 2021. "Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis," Journal of Corporate Finance, Elsevier, vol. 68(C).
    9. Ducret, Romain, 2021. "Investors' perception of business group membership during an economic crisis : Evidence from the COVID-19 pandemic," FSES Working Papers 524, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    10. Andrieș, Alin Marius & Ongena, Steven & Sprincean, Nicu, 2021. "The COVID-19 Pandemic and Sovereign Bond Risk," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    11. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    12. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    13. Massimiliano Affinito & Raffaele Santioni, 2021. "When the panic broke out: COVID-19 and investment funds' portfolio rebalancing around the world," Temi di discussione (Economic working papers) 1342, Bank of Italy, Economic Research and International Relations Area.
    14. Rouatbi, Wael & Demir, Ender & Kizys, Renatas & Zaremba, Adam, 2021. "Immunizing markets against the pandemic: COVID-19 vaccinations and stock volatility around the world," International Review of Financial Analysis, Elsevier, vol. 77(C).
    15. Zaremba, Adam & Kizys, Renatas & Tzouvanas, Panagiotis & Aharon, David Y. & Demir, Ender, 2021. "The quest for multidimensional financial immunity to the COVID-19 pandemic: Evidence from international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    16. Steven J. Davis & Dingqian Liu & Xuguang Simon Sheng, 2022. "Stock Prices and Economic Activity in the Time of Coronavirus," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 32-67, March.
    17. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    18. Roddy Allan & Ervi Liusman & Teddy Lu & Desmond Tsang, 2021. "The COVID-19 Pandemic and Commercial Property Rent Dynamics," JRFM, MDPI, vol. 14(8), pages 1-24, August.
    19. Bae, Kee-Hong & El Ghoul, Sadok & Gong, Zhaoran (Jason) & Guedhami, Omrane, 2021. "Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic," Journal of Corporate Finance, Elsevier, vol. 67(C).
    20. Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).

    More about this item

    Keywords

    COVID-19; Firm efficiency; Resiliency;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.