Leadership in a pandemic: Do more able managers keep firms out of trouble?

The Coronavirus crisis has led to unprecedented economic shocks to the corporate world and challenged how corporate management contributes to business resilience amid the pandemic. Employing a novel measure of managerial ability constructed for a large sample of U.S. publicly listed firms, we document that firms led by higher managerial ability exhibit lower stock return volatility, higher operating performance, and lower levels of default risk amid the pandemic. A difference-in-differences analysis suggests that the impact of managerial ability on firm performance is stronger during the pandemic than during the pre-pandemic period. The effect of managerial competency on corporate resiliency is more pronounced among firms that have high exposure to COVID-19. In addition, firms led by high managerial competency management are associated with higher stock liquidity and are less likely to exhibit employment, healthcare, safety, and consumer protection related violations amid the pandemic.

State-level COVID-19 outbreak and stock returns.

We use state-level data to evaluate the connection between outbreaks of COVID-19 and stock returns over the period January-June 2020. We show that daily increases in the number of infected cases, hospitalized cases, and deaths are negatively associated with next day stock returns of firms headquartered in the same state. The relationship is weaker among states with high levels of medical resources and states that are likely to get support from the federal government. In addition, we find that the negative effect is reduced for firms that report an expectation that an outbreak will increase revenues and for firms with a strong corporate social responsibility practice. We believe our study is the first paper to assess cross-sectional stock price reactions to COVID-19 as a function of the state-level impact of the pandemic outbreak.