IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v209y2021ics0165176521004183.html
   My bibliography  Save this article

Tobin’s q and corporate investment with a pandemic shock

Author

Listed:
  • Li, Shilin
  • Li, Tongtong
  • Yang, Jinqiang
  • Zhao, Siqi

Abstract

We analyze the impact of COVID-19 on investment by incorporating a stochastic transmission shock into the standard q theoretical framework. Our model suggests that the adjustment cost amplifies the negative pandemic shock to investment and decreases firm value. In particular, when the infection rate is low, the reduction in investment is higher for firms with low adjustment costs in that they are more sensitive to the infection rate. An optimistic expectation of the arrival rate of a vaccine reduces the probability of executing mitigation policy. Moreover, the uncertainty of the pandemic increases investment and enhances firm value during the pandemic regime.

Suggested Citation

  • Li, Shilin & Li, Tongtong & Yang, Jinqiang & Zhao, Siqi, 2021. "Tobin’s q and corporate investment with a pandemic shock," Economics Letters, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:ecolet:v:209:y:2021:i:c:s0165176521004183
    DOI: 10.1016/j.econlet.2021.110141
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176521004183
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2021.110141?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. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, vol. 64(4), pages 1729-1766, August.
    2. Eberly, Janice & Rebelo, Sergio & Vincent, Nicolas, 2012. "What explains the lagged-investment effect?," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 370-380.
    3. Daron Acemoglu & Victor Chernozhukov & Iván Werning & Michael D. Whinston, 2021. "Optimal Targeted Lockdowns in a Multigroup SIR Model," American Economic Review: Insights, American Economic Association, vol. 3(4), pages 487-502, December.
    4. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    5. Harrison Hong & Neng Wang & Jinqiang Yang, 2021. "Implications of Stochastic Transmission Rates for Managing Pandemic Risks [Comparison of deterministic and stochastic SIS and SIR models in discrete time]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5224-5265.
    Full references (including those not matched with items on IDEAS)

    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. Graham, James & Ozbilgin, Murat, 2021. "Age, industry, and unemployment risk during a pandemic lockdown," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    2. Christian Moser & Pierre Yared, 2022. "Pandemic Lockdown: The Role of Government Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 27-50, October.
    3. Lazebnik, Teddy & Shami, Labib & Bunimovich-Mendrazitsky, Svetlana, 2023. "Intervention policy influence on the effect of epidemiological crisis on industry-level production through input–output networks," Socio-Economic Planning Sciences, Elsevier, vol. 87(PA).
    4. Andrew G. Atkeson & Karen Kopecky & Tao Zha, 2021. "Behavior and the Transmission of COVID-19," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 356-360, May.
    5. Taojun Xie & Jiao Wang & Shiqi Liu, 2021. "Impact of Travel Bubbles: Cooperative Travel Arrangements in a Pandemic," Melbourne Institute Working Paper Series wp2021n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    6. Cristina Arellano & Yan Bai & Gabriel P. Mihalache, 2020. "Deadly Debt Crises: COVID-19 in Emerging Markets," NBER Working Papers 27275, National Bureau of Economic Research, Inc.
    7. Stefan Schiman & Atanas Pekanov, 2020. "Uncertainty in the Euro Area During the First Wave of the COVID-19 Pandemic," WIFO Studies, WIFO, number 66708.
    8. Kumar, Anand & Priya, Bhawna & Srivastava, Samir K., 2021. "Response to the COVID-19: Understanding implications of government lockdown policies," Journal of Policy Modeling, Elsevier, vol. 43(1), pages 76-94.
    9. M. Hashem Pesaran & Cynthia Fan Yang, 2022. "Matching theory and evidence on Covid‐19 using a stochastic network SIR model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1204-1229, September.
    10. Nicola Fuchs-Schündeln & Dirk Krueger & André Kurmann & Etienne Lalé & Alexander Ludwig & Irina Popova, 2023. "The Fiscal and Welfare Effects of Policy Responses to the Covid-19 School Closures," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 35-98, March.
    11. Hakan Yilmazkuday, 2022. "Nonlinear effects of mobility on COVID-19 in the US: targeted lockdowns based on income and poverty," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(1), pages 18-36, April.
    12. Shami, Labib & Lazebnik, Teddy, 2022. "Economic aspects of the detection of new strains in a multi-strain epidemiological–mathematical model," Chaos, Solitons & Fractals, Elsevier, vol. 165(P2).
    13. Adolfo Rubinstein & Eduardo Levy Yeyati, 2022. "An Integrated Epidemiological and Economic Model of COVID-19 NPIs in Argentina," Working Papers 197, Red Nacional de Investigadores en Economía (RedNIE).
    14. Nikhil Agarwal & Andrew Komo & Chetan A. Patel & Parag A. Pathak & M. Utku Ünver, 2021. "The Trade-off Between Prioritization and Vaccination Speed Depends on Mitigation Measures," NBER Working Papers 28519, National Bureau of Economic Research, Inc.
    15. Dirk Niepelt & Mart n Gonzalez-Eiras, 2020. "Optimally Controlling an Epidemic," Diskussionsschriften dp2019, Universitaet Bern, Departement Volkswirtschaft.
    16. Kim, Dongwoo & Lee, Young Jun, 2022. "Vaccination strategies and transmission of COVID-19: Evidence across advanced countries," Journal of Health Economics, Elsevier, vol. 82(C).
    17. Hakan Yilmazkuday, 2021. "Welfare costs of COVID‐19: Evidence from US counties," Journal of Regional Science, Wiley Blackwell, vol. 61(4), pages 826-848, September.
    18. Torsten Heinrich, 2021. "Epidemics in modern economies," Chemnitz Economic Papers 045, Department of Economics, Chemnitz University of Technology, revised May 2021.
    19. Chen, Xiaowei & Chong, Wing Fung & Feng, Runhuan & Zhang, Linfeng, 2021. "Pandemic risk management: Resources contingency planning and allocation," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 359-383.
    20. Alexandre Gori Maia & Leticia Marteleto & Cristina Guimarães Rodrigues & Luiz Gustavo Sereno, 2021. "The short-term impacts of coronavirus quarantine in São Paulo: The health-economy trade-offs," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-18, February.

    More about this item

    Keywords

    Adjustment costs; Pandemic risk; Mitigation policy; Corporate investment;
    All these keywords.

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G01 - Financial Economics - - General - - - Financial Crises
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

    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:ecolet:v:209:y:2021:i:c:s0165176521004183. 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/ecolet .

    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.