Governmental responses and firm resilience during the COVID-19 pandemic: The role of culture and politics

Edina Berlinger, Dieter Gramlich, Thomas Walker and Yunfei Zhao

Economic Systems, 2024, vol. 48, issue 3

Abstract: Using data from 180 countries and 24,833 publicly traded firms worldwide, this study examines how cultural and political factors influence the stringency of a government’s response to the COVID-19 pandemic and, in turn, the stock prices of firms and industries operating in a given country. Existing research demonstrates that government behavior during a pandemic can directly or indirectly affect stock prices. This study explores twelve political and cultural characteristics that might influence government policies. Interestingly, our results indicate that democratic and less long-term-oriented countries employ stricter responses to the pandemic. Furthermore, countries with higher individualism, coalition governments, and governments not battling for re-election appear to employ a smoothing strategy: although they implement stringent responses early on, they tend to react less aggressively when the number of COVID-19 cases increases. This study finds that increased stringency has a negative impact on corporate abnormal returns, especially during the early stages of the pandemic. Our study has important policy implications and offers valuable insights to investors: stock price reactions depend on political and cultural factors, industry, and firm characteristics. Most importantly, larger firms with more cash operating in collectivist and politically stable countries are more resilient.

Keywords: Culture; Politics; Pandemics; Virus spread; Economic impact; Abnormal returns (search for similar items in EconPapers)
JEL-codes: A13 E24 E51 F10 I15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:48:y:2024:i:3:s0939362524000189

DOI: 10.1016/j.ecosys.2024.101196

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