Economic policy uncertainty and corporate donation: evidence from private firms in Korea

This study examines the association between economic policy uncertainty (EPU) and private firms' corporate donations. Based on resource constraints and the conservation of resources (COR) theory, we argue that private firms are constantly facing resource constraints and their resource conservation motive becomes apparent when EPU is heightened. Therefore, we expect that corporate donations are negatively related to EPU. Using audited corporate donations from 48,903 private firms in Korea during 2002–2019, we find that private firms' donations are negatively related to EPU. We find that private firms operating in more competitive conditions increase their donations, but this positive association between market competition and donations is moderated by EPU. We find that private firms' donations increased when the progressive party is in power, but this positive relationship is also moderated by EPU. Our results suggest that firms reduce their level of corporate giving to conserve resources as a precautionary saving motive when they face higher EPU. Our paper contributes to the strand of literature on corporate donations and EPU by providing evidence that EPU significantly affects private firms' donations. We also find that firms' strategic motives and political pressure to engage in corporate donations are moderated by EPU.

Do stock markets love misery? Evidence from the COVID-19.

This study examines the impact of the change in the Barro Misery Index (BMI) and the novel coronavirus (COVID-19) cases and deaths on the stock markets' returns and volatility. Based on a sample of 76 different countries, we find that an increase in BMI adversely affects the stock returns and increases stock volatility. We also find that an increase in BMI coupled with an increase in percentage cases of COVID-19 adversely affect stock returns and increases volatility. We find that the impacts of BMI on stock returns and volatility are driven by real GDP changes, unemployment rate, and long-term interest rate instead of inflation rates, especially for the developed countries. Our findings are consistent with Barro (1999), which indicates that the BMI represents a better measure relative to the original misery index in predicting the economic outcome, especially during the COVID-19 pandemic. We also find that the impacts of BMI components on stock returns and volatility for the developed countries are different from the emerging markets.

How do equity markets react to COVID-19? Evidence from emerging and developed countries.

Based on the supply of stock market returns hypothesis, we argue that the unprecedented adverse shock of COVID-19 on the countries' economic growth translates into a negative shock to the stock markets. According to the institutional theory, we also argue that the impact of COVID-19 in emerging countries is different from developed countries. Based on the overreaction hypothesis, we expect that the market reaction during the stabilizing period of COVID-19 spread is different from the market reaction during the infection period. Using high-frequency daily data across 53 emerging and 23 developed countries from January 14 to August 20, 2020, we find that COVID-19 cases and deaths adversely affect stock returns and increase volatility and trading volume. Cases and deaths affected stock returns and volatility in the emerging markets, while only cases of COVID-19 affected stock returns, volatility, and trading volume in the developed markets. COVID-19 cases and deaths are related to returns, volatility, and trading volume for emerging countries during the rising infection of COVID-19 (pre-April 2020), while cases and mortality rates are related to returns, volatility, and trading volume in developed countries during the stabilizing spread (post-April 2020). Therefore, the emerging markets' investors seem to react to COVID-19 cases and mortality rates differently from those in the developed markets across two different periods of COVID-19 infection.