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Does Absorptive Capacity Protect Shareholder Wealth in Times of Crisis? Evidence from the COVID-19 Pandemic

Author

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  • Singh, Amanjot

    (King’s University College at the University of Western Ontario)

Abstract

R&D capital increases firms’ ability to identify, absorb, and utilize new external information. Firms with absorptive capacity become resilient to external shocks while providing an opportunity to protect shareholder wealth during a crisis period. This study examines the role of firms’ absorptive capacity in protecting shareholder wealth around the COVID-19-induced stock market crisis. Our findings report that firms’ absorptive capacity is positively related to stock returns of US firms during the COVID-19 pandemic. This positive relationship exists irrespective of investor attention and is robust to the propensity-score-matching approach. Overall, the results imply that R&D capital makes firms resilient to external shocks.

Suggested Citation

  • Singh, Amanjot, 2022. "Does Absorptive Capacity Protect Shareholder Wealth in Times of Crisis? Evidence from the COVID-19 Pandemic," American Business Review, Pompea College of Business, University of New Haven, vol. 25(1), pages 83-91, May.
    • Handle: RePEc:ris:ambsrv:0050
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    File URL: https://digitalcommons.newhaven.edu/americanbusinessreview/vol25/iss1/6/
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    More about this item

    Keywords

    Absorptive Capacity; COVID-19; Stock Returns;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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