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Impact of operational fragility on stock returns: Lessons from COVID‐19 crisis

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  • Avijit Bansal
  • Balagopal Gopalakrishnan
  • Joshy Jacob
  • Pranjal Srivastava

Abstract

We examine how the market valuation of firms varies on account of their operational fragility that makes them vulnerable to the COVID‐19 pandemic. Using the data on plant location that uniquely identifies the vulnerability of firms to operational disruptions, we find that firms with plants located in zones susceptible to higher infections earn significantly lower returns. For firms with high operational fragility, the marginal value of financial flexibility and operating flexibility is higher. The adverse impact of the operational fragility is lower for firms affiliated with the larger business groups. The paper identifies unique channels associated with the pandemic that impact firm value.

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  • Avijit Bansal & Balagopal Gopalakrishnan & Joshy Jacob & Pranjal Srivastava, 2022. "Impact of operational fragility on stock returns: Lessons from COVID‐19 crisis," International Review of Finance, International Review of Finance Ltd., vol. 22(2), pages 365-398, June.
    • Handle: RePEc:bla:irvfin:v:22:y:2022:i:2:p:365-398
    DOI: 10.1111/irfi.12374
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    1. Srivastava, Pranjal & Jacob, Joshy, 2022. "Risk information - normal markets and the COVID-19 pandemic period," IIMA Working Papers WP 2022-10-02, Indian Institute of Management Ahmedabad, Research and Publication Department.

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