The COVID-19 Crisis and the Allocation of Capital

Abstract

We summarize and synthesize the results of the papers in this symposium issue on research related to the Covid-19 Pandemic. We argue that, taken together, the papers present evidence that the pandemic resulted in a shock to capital allocation. The reasons include accelerating technological shifts that disrupted financial and real economic activities, thus affecting both the supply of capital and reshuffling the demand for capital across sectors and businesses, as well as unprecedent stimulus packages that allocated capital to individuals, firms, and local governments through a myriad of programs and program designs. We present additional evidence on the heterogeneous cross-industry impacts on profit, payout, investment, employment and productivity. This is a ``preproof'' accepted article for Journal of Financial and Quantitative Analysis. This version may be subject to change during the production process.

Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19

“…While investors in the GFC primarily sought to avoid exposure to the financial sector, our analysis reveals how firms selected what they considered the most resilient firms within each sector. This is consistent with the idea that the COVID-19 crisis, unlike the GFC, had more to do with the reallocation of capital rather than an aggregate decline in the supply of capital (Duchin and Harford, 2021).…”

Estimating contagion mechanism in global equity market with time‐zone effect

“…Dynamic analysis indicates the global market has exhibited abnormal behaviors and opened up new channels for information transmission beyond the traditional contagion mechanism. Furthermore, we show that the impacts of the COVID-19 crisis are more sudden and severe than those of the subprime and European debt crises, in line with the evidence in a series of influential papers that COVID-19 acts more like a short-term shock rather than a long-term crisis (Acemoglu et al, 2021;Augustin et al, 2022;Baqaee & Farhi, 2022;Barry et al, 2022;Caballero & Simsek, 2021;Duchin & Harford, 2021;Eichenbaum et al, 2021;Guerrieri et al, 2022).…”