Working Paper: CEPR ID: DP15022
Authors: Luc Laeven
Abstract: We evaluate the role of input-output linkages and social distancing in transmitting the COVID-19 shock to the valuation of U.S. corporates. Using a new dataset on sectoral dependence on the use and sale of intermediate goods, we find that firms that depend on the sale of intermediate goods to sectors affected by social distancing are more affected by the crisis. We estimate that the indirect effect of social distancing through input-output linkages is at least as important as its direct effect. Several tests are consistent with the view that larger firms and firms with cash buffers are better able to absorb the pandemic shock.
Keywords: valuation; liquidity; cash; intermediate goods; pandemic
JEL Codes: D22; D57; G01; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| one standard deviation increase in the industry's share of workers affected by social distancing (J29) | 27% decline in stock returns (G17) |
| one standard deviation increase in the fraction of output sold to social distancing-affected sectors (F61) | 31% decline in stock returns (G17) |
| firm characteristics (size, cash holdings) (G32) | stock price resilience (G17) |