Abstract
We examine how the market valuation of firms varies on account of their operational fragility that makes them vulnerable to the COVID-19 pandemic. Using the data on plant location that uniquely identifies the vulnerability of firms to operational disruptions, we find that firms with plants located in zones susceptible to higher infections earn significantly lower returns. For firms with high operational fragility, the marginal value of financial flexibility and operating flexibility is higher. The adverse impact of the operational fragility is lower for firms affiliated with the larger business groups. The paper identifies unique channels associated with the pandemic that impact firm value.
| Original language | English |
|---|---|
| Pages (from-to) | 365-398 |
| Number of pages | 34 |
| Journal | International Review of Finance |
| Volume | 22 |
| Issue number | 2 |
| Early online date | 3 Feb 2022 |
| DOIs | |
| Publication status | Published - Jun 2022 |
| Externally published | Yes |
Bibliographical note
We acknowledge the support provided by Misra Center for Financial Markets and Economy at IIMA for dissemination of the paper. We thank Ashok Banerjee, Abhiman Das, Martin J. Dierker, Jaydev M., Mridul Misra, Sanket Mohapatra, Sumit Saurav, Venketachalam Shunmugham, Bharti Singh, Jagriti Srivastava, Chinmay Tumbe, Ellapulli Vasudevan, Jayanth R. Varma, and seminar and conference participants at 15th Conference on Asia-Pacific Financial Markets 2020, 28th Securities and Financial Markets Conference, National Institute of Securities Market conference 2020 for their useful comments and suggestions. Author names appear in the alphabetical order. Usual disclaimers apply.Data Availability Statement
Additional supporting information may be found in the online version of the article at the publisher's website.Keywords
- COVID-19
- financial flexibility
- group affiliation
- India
- operating leverage
- operational fragility