Covid-19, firm exposure, and firm value: a tale of two lockdowns

We study how a public health crisis affects firms at different phases of outbreak. Using an event study approach, we find that the stock market in China responded significantly to two symbolic events in the outbreak of Covid-19: (1) the lockdown of Hubei province; and (2) the containment of the disease in China and its spread to overseas. It responded negatively (positively) to the first (second) event. Further regression analysis reveals that, following the first event, firms with Hubei exposures earned significantly lower returns while those with foreign exposures earned significantly higher returns. Foreign exposures, however, had significantly negative effects on returns following the second event. The valuation effects of Hubei and foreign exposures also vary across firm ownership and industries. Our results highlight the values and risks associated with having an international status. They also indicate that both within-firm internal networks and crossfirm input-output linkages play crucial roles in the propagation of shocks.