The dark side of globalization: Evidence from the impact of COVID-19 on multinational companies

Abstract

The COVID-19 pandemic has led to economic and health crises (“twin crises”) worldwide. Using a sample of firms from 73 countries over the period January to December 2020, we examine stock price reactions of multinational corporations (MNCs) and purely domestic companies (DCs) to the crisis. We find that, on average, MNCs suffer a significantly larger decline in firm value relative to DCs during the stock market crisis caused by the pandemic with notable heterogeneity in this underperformance across both industry and region. The evidence of MNC underperformance is robust to using abnormal returns, an alternative crisis window, a matched sample that accounts for differences in characteristics between MNCs and DCs, alternative model specifications, and alternative proxies for multinationality. Further analysis on the effect of government responses on the valuation gap suggests that stringent government responses exacerbate MNCs’ underperformance. Finally, we show that a stronger financial system mitigates negative crisis returns, especially under stringent government responses, while real factors, such as the firm’s supply chain, investments in human capital, research and development, exacerbate negative crisis returns. Our findings have important implications for managers of MNCs and government policymakers alike and contribute to studies on the international diversification–performance relation by demonstrating a dark side of globalization during a tail-risk event.

Effective risk management in the shadow of COVID-19 pandemic: The evidence of Indonesian listed corporations

“…In addition, this study is a complement to the existing literature on the effect of the COVID-19 pandemic on NFCs, which suggested that the pre-COVID-19 corporate characteristic, including cash (solvability and liquidity), profitability, and corporate governance, shape corporate resilience and performance with the COVID-19 pandemic [ [18] , [19] , [20] , [21] ]. The study focuses instead on the causal effect of corporate Effective Risk Management practices during the post-treatment on its Operational Efficiency.…”

Economic impact of COVID-19 across national boundaries: The role of government responses

“…Correspondingly, share repurchases in 2020 fell dramatically from pre-pandemic levels as firms conserved cash to withstand the economic fallout from the pandemic. Access to capital was clearly a key factor in the ability of firms to survive the dramatic shocks to demand and supply, and to maintain their essential approach to conducting business (Guedhami et al, 2022 ).…”

“…However, there is some evidence that the adverse economic impact of the pandemic varied with the stringency and efficiency of government responses (Duan et al, 2021 ; Gormsen & Koijen, 2020 ; Guedhami et al, 2022 ). Table 1 provides evidence consistent with this.…”

“…There are other, surprising, factors at play. Guedhami, Knill, Megginson, and Senbet ( 2022 ), for example, find that the internationalization of the firm (its degree of multinationality) has created a valuation discount during this crisis. This discount, relative to domestic-only firms, has many influences, particularly supply chain issues and international sales disruptions, but also ill-timed and ex post excessive investments in human capital, research and development, and fixed assets, which are more complex for multinational firms.…”

Segmentation of African countries based on infection and death rates of COVID-19 before vaccination: A rigid population to source for workforce amidst the pandemic?

“…Prior to the commencement of vaccination, the pandemic negatively affected businesses across the world including investment, sales, employment, production, and supply chains ([ 9 , 13 ]; International Labour Organization [ [16] , 2022). The negative effects on businesses were largely caused by the lockdown rules imposed by various authorities, the inability of some enterprises to operate remotely, and the health consequences of the pandemic on citizens.…”