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COVID-19 and Firm Response: Evidence from China

Author

Listed:
  • Dongmin KONG

    (School of Economics, Huazhong University of Science and Technology)

  • Chen LIU

    (School of Economics, Huazhong University of Science and Technology)

  • Mengxu XIONG

    (School of Economics, Huazhong University of Science and Technology)

Abstract

This paper explores the effects of the coronavirus disease (COVID-19) pandemic on firm response. Using a novel COVID-19 sentiment index, our estimation shows that the pandemic significantly reduced the overseas revenue and profits of firms listed on the Chinese A-share market. Moreover, we observe that an increase in loans, and a drop in debt financing cost and trade credit, were prominent during the pandemic. We contend that reduced cash flows, which damaged firm operations; government support, which provided more financing channels; and increased default risks, which placed barriers on trade credit, are the plausible mechanisms through which the COVID-19 pandemic affects firm performance. Profit contraction was more pronounced for firms with a lower ratio of domestic content in exports and state-owned enterprises, while external financing was easier for firms subject to stringent financial constraints despite their lowered trade credit.

Suggested Citation

  • Dongmin KONG & Chen LIU & Mengxu XIONG, 2024. "COVID-19 and Firm Response: Evidence from China," Working Papers DP-2023-29, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2023-29
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    References listed on IDEAS

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    Keywords

    COVID-19 pandemic; firm response; external financing;
    All these keywords.

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