Controlling shareholder share pledging and the cost of equity capital: Evidence from China

We propose and test the incentive view—that the margin call pressure and ownership-control discrepancy associated with insider share pledging increase investors’ perceived risk, and thus also the cost of equity capital, in an emerging market. Using a controlling shareholder share pledging sample for Chinese listed firms, we find that firms with share pledging have a cost of equity capital that is 23.7 basis points higher than firms without share pledging. Further, share pledging increases the cost of equity capital through the information risks and agency conflicts channels. Cross-sectional analyses show that share pledging has a stronger effect on the cost of equity capital in non-state-owned enterprises, firms without monitoring of multiple large shareholders, firms with controlling shareholders assuming the position of chairperson, and firms with a weak institutional environment. In addition, using the global financial crisis and the outbreak of the coronavirus (COVID-19) as quasi-natural experiments, we disentangle the potential confounding effect of firm fundamentals and show that share pledging is positively associated with the cost of equity capital. Overall, the results are consistent with our incentive view that share pledging increases the cost of equity capital in an emerging market.     

COVID-19 Sentiment and the Chinese Stock Market: Evidence from the Official News Media and Sina Weibo

This study quantitatively measures the Chinese stock market’s reaction to sentiments regarding the Novel Coronavirus 2019 (COVID-19). Using 6.3 million items of textual data extracted from the official news media and Sina Weibo blogsite, we develop two COVID-19 sentiment indices that capture the moods related to COVID-19. Our sentiment indices are real-time and forward-looking indices in the stock market. We discover that stock returns and turnover rates were positively predicted by the COVID-19 sentiments during the period from December 17, 2019 to March 13, 2020. Consistent with this prediction, margin trading and short selling activities intensified proactively with growth sentiment. Overall, these results illustrate how the effects of the pandemic crisis were amplified by the sentiments.     

Disparities Old and New in US Mental Health during the COVID-19 Pandemic*

The COVID-19 pandemic has reduced well-being and economic security on a number of dimensions, likely worsening mental health. In this paper, we assess how mental health in the US population has changed during the pandemic. We use three large, nationally representative survey sources to provide a picture of mental health prior to and during the pandemic. We find dramatic but broad-based declines in the level of mental health from pre-pandemic baseline measures across both people and places. Rates of poor mental health have jumped roughly 25 percentage points, from a base of roughly one-third. We document substantial disparities in mental health but show that the pandemic has generally preserved, rather than widened, these. Significant worsening in relative mental health among Hispanics and respondents aged 30 and older are exceptions. Consistent with an important role for pandemic-specific shocks, We find that income loss, food insecurity, COVID-19 infection or death in one's close circle, and personal health symptoms are all associated with substantially worse mental health. If anything, the decline in mental health is worsening as the pandemic wears on and is becoming less related to local COVID-19 case rates.     

Analyst Research Activity During the COVID-19 Pandemic

This paper documents that, in response to the COVID-19 pandemic, analysts increase their research activity and significantly revise their forecasts when compared to the pre-pandemic period. Uncertainty-adjusted forecast errors are either comparable or smaller during the pandemic compared to the pre-pandemic period. Investor attention and price reactions to analyst forecast revisions are higher during the pandemic and the effect is stronger in periods where investors actively search for information about firms. During the pandemic, investors value analyst price discovery role more than their role in interpreting public information. Jointly, the results suggest that analysts play an important information intermediation role during the COVID-19 pandemic.     

COVID-19 and A-share banks' stock price volatility: From the perspective of the epidemic evolution in China and the US

With a financial market dominated by indirect financing, China's banking system played a critical role in the government's response to COVID-19, which piqued our interest in the short-term impact of COVID-19 on the risk of China's banks. Examining the stock price of A-share listed banks and the number of confirmed cases in China and the US during the short time window surrounding the COVID-19 pandemic's outbreak, this study reveals that COVID-19 increased the A-share banking price volatility in both China and the US, reflecting a strong spillover effect of the US economic and financial system. Furthermore, COVID-19 in China has a smaller impact on the stock price volatility of China's state-owned banks (SOBs) than that of medium- and small-sized (M&S) banks, reflecting the higher risk resistance capability of large SOBs. Further analysis confirms that the impact primarily reflected systematic risk rather than idiosyncratic risk, as small and micro enterprises and M&S banks received more targeted financial support from the government. In contrast, large banks took on more responsibilities in the emergency financial stimulus, narrowing the idiosyncratic risk gap between the two types of banks and allowing the banking industry to better play its core role in the recovery of real economy in China. These findings will assist us in better understanding the effectiveness of financial assistance policies during the epidemic and will provide insights for future policymaking during similar crises.     

Corporate governance and stock performance: The case of COVID-19 crisis

This paper analyzes the impact of COVID-19 on firm-level stock behaviors (including stock price volatility, trading volume and stock returns). Using US data, this paper examines whether confirmed cases (and deaths) of COVID-19 or COVID-19-associated online searches affect stock behaviors. The results show that our five COVID-19 proxies are all positively associated with stock price volatility and trading volume and negatively associated with stock returns. This paper further investigates the mitigating effect of corporate governance (viz., board and ownership structures) in this COVID-19 crisis. Overall, the results suggest that good corporate governance can mitigate the impact of COVID-19 on stock price volatility and trading volume but may not help to enhance stock returns. This paper also considers key policies used to tackle the COVID-19 pandemic and finds that government intervention plays an important role in stabilizing stock markets in this COVID-19 crisis.     

Childcare Assistance: Are Subsidies or Tax Credits Better?

We evaluate price subsidies and tax credits for childcare. We focus on partnered women's labour supply, household income and welfare, demand for childcare and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labour supply and childcare demand. We introduce two methodological innovations – a more flexible quantity constraint that total formal and informal childcare hours are at least as large as the mother's labour supply and the explicit inclusion of maternal childcare in the utility function as a proxy for child development. We find that tax credits are more effective than subsidies in terms of increasing average hours worked and household income. However, tax credits disproportionately benefit wealthier and more educated women. Price subsidies, while less efficient, have positive redistributional effects.     

Dividends and share repurchases during the COVID-19 economic crisis

In this article, we examine dividends and share repurchases of S&P 1500 firms during the COVID-19 crisis characterized by the stock market crash and a relatively quick stock price recovery propelled by technology stocks. We find that the great majority of firms either maintain or increase the level of dividends during the crisis period. Yet, the relation between the dividend payout and reported earnings is negative and significant. This relation also holds for other types of payouts, including share repurchases and special dividends. Moreover, we find that both forecasted and realized earnings of up to 1 year into the future are negatively associated with current dividends, implying that existing payout policies are unsustainable in the longer term. Surprisingly, the difference-in-differences test shows that firms strongly affected by the COVID-19 crisis have higher dividend payouts (relative to net earnings) compared to unaffected firms. The same test indicates that strongly affected firms significantly reduce repurchases.     

Gender equity in public accounting: Evidence from single audit partner and director engagement leaders

While women are hired in equal numbers to men in public accounting, they are not proportionately promoted to partner, reflecting “vertical gender segregation.” This study examines vertical segregation in director positions which are an alternative terminal destination to the partnership. Using a U.S. non-profit setting, our results demonstrate that directors signing single audit reports are more likely to be female after controlling for client and signer characteristics, a clear pattern of gender-based vertical segregation among engagement leaders. This finding provides insights into practices which divert women to lower prestige director positions. In a supplemental test, we also find a fee premium for female partners but a fee discount for female directors, which may lead to gender-bias in compensation. These findings are particularly timely considering the disproportionate effect of the COVID-19 pandemic on women.     

Recessions and Health: The Long-Term Health Consequences of Responses to the Coronavirus*

The lockdown measures that were implemented in the spring of 2020 to stop the spread of COVID-19 are having a huge impact on economies in the UK and around the world. In addition to the direct impact of COVID-19 on health, the following recession will have an impact on people's health outcomes. This paper reviews economic literature on the longer-run health impacts of business-cycle fluctuations and recessions. Previous studies show that an economic downturn, which affects people through increased unemployment, lower incomes and increased uncertainty, will have significant consequences on people's health outcomes both in the short and longer term. The health effects caused by these adverse macroeconomic conditions will be complex and will differ across generations, regions and socio-economic groups. Groups that are vulnerable to poor health are likely to be hit hardest even if the crisis hit all individuals equally, and we already see that some groups such as young workers and women are worse hit by the recession than others. Government policies during and after the pandemic will play an important role in determining the eventual health consequences.     

Risk contagion of COVID-19 in Japanese firms: A network approach

The novel coronavirus disease (COVID-19) is one of the worst pandemics in human history. Our research objective is to assess the contagion effect on Japanese firms and to evaluate the Japanese government's COVID-19 measures during the period from April 7, 2020, to May 25, 2020. We propose a susceptible-infected-recovered-dead model for COVID-19 and derive COVID-19 parameters for Japan. Subsequently, we analyze the effect of COVID-19 on Japanese firms through correlation-based network and credit risk analyses. The main findings are that the Tokyo Stock Price Index moved in the opposite direction of COVID-19 parameters and COVID-19 parameters are almost the only risk factors that impact a firm's credit risk during the period. Finally, we find that the interconnection analysis between the COVID-19 infection network and the financial networks contribute to the existing pandemic risk management knowledge.     

Dynamic spillovers between energy and stock markets and their implications in the context of COVID-19

This study combined time-varying parameter vector autoregression (TVP-VAR) and a spillover index model to analyze the static, total, and net spillover effects of energy and stock markets before and after the COVID-19 outbreak. A network method was also used to depict structural changes more intuitively. Furthermore, we calculated and compared changes in the hedge ratio, optimal portfolio weights, and hedge effectiveness to guide investors to adjust portfolio strategies during COVID-19. The main findings were as follows: First, COVID-19 had a significant impact on spillover effects, and the average value of total spillover index increased by 19.94% compared with that before the epidemic. Second, the energy market was an important risk recipient of the stock market before COVID-19, and the extent of risk acceptance increased after the COVID-19 outbreak. Third, the hedging ratio, optimal portfolio weights, and hedge effectiveness showed huge changes after the COVID-19 outbreak, requiring investors to adjust their portfolio strategies.     

The Impact of COVID-19 on Share Prices in the UK*

The spread of COVID-19, and international measures to contain it, are having a major impact on economic activity in the UK. In this paper, we describe how this impact has varied across industries, using data on share prices of firms listed on the London Stock Exchange, and how well targeted government support for workers and companies is in light of this.     

The Mental Health Effects of the First Two Months of Lockdown during the COVID-19 Pandemic in the UK*

In this paper, we estimate the effects of the COVID-19 pandemic on mental health in the UK. We use longitudinal micro data for the UK over the period 2009–20 to control for pre-existing trends in mental health and construct individual-specific counterfactual predictions for April 2020, against which the COVID-19 mental health outcomes can be assessed. Our analysis reveals substantial effects at the population level, approximately equal in magnitude to the pre-pandemic differences between the top and bottom quintiles of the income distribution. This overall effect was not distributed equally in the population – the pandemic had much bigger effects for young adults and for women, which are groups that already had lower levels of mental health before COVID-19. Hence inequalities in mental health have been increased by the pandemic. Even larger effects are observed for measures of mental health that capture the number of problems reported or the fraction of the population reporting any frequent or severe problems, which more than doubled. Pre-existing health vulnerabilities had no predictive power for subsequent changes in mental health.     

The Eurozone banking sector in the time of COVID-19: Measuring volatility connectedness

This article investigates the volatility connectedness of the Eurozone banking system over the last 15 years (from 2005 to 2020). Applying the Diebold-Yilmaz Connectedness Index model to the daily stock return volatilities of 30 major Eurozone banks, we are able to measure the risk spillover effects and to capture the COVID-19 outbreak's impact on banking stability. The empirical findings show that the 30 banks are highly interconnected. Furthermore, we show the strong impact of the COVID-19 pandemic on the volatility dynamics, i.e., on the structure of the Eurozone banking system. Dynamically, we find that volatility connectedness increases during crises, reaching its maximum peak at the time of COVID-19. The analysis points out the critical role of volatility transmission played by large banks, highlighting the “too-big-to-fail” characteristic of this banking system. However, we find that small-medium banks are important actors of contagion, supporting the thesis that the Eurozone banking system is also “too-interconnected to fail.” Finally, we document the heterogeneity effect of the COVID-19 pandemic between Eurozone banking systems. This heterogeneity impact could be a future source of financial instability within the Eurozone.     

Impacts of COVID-19 on Women and/or Caregivers in Accounting Academia at Canadian Postsecondary Institutions and Suggestions Moving Forward: A Commentary*

This commentary provides insights on the issues faced by women and/or caregivers in accounting academia at Canadian postsecondary institutions during the COVID-19 pandemic. Personal reflections from 23 contributors across Canada were compiled and analyzed using thematic content analysis. Results show that COVID-19 has adversely impacted research, teaching, and other areas of work and life for this demographic. Research stopped or slowed, lower productivity was experienced, concerns over academic integrity increased, interactions with students decreased, academics left the profession, mental health was adversely impacted, and academics lost dedicated work time. In addition, the contributors provide suggestions to address these issues moving forward to help equity-seeking groups. Suggestions include support from postsecondary institutions at all levels, additional funding, adjustments to tenure and promotion criteria, and the option for a reduced workload.     

Diversifying equity with cryptocurrencies during COVID-19

Literature suggests assets become more correlated during economic downturns. The COVID-19 crisis provides an unprecedented opportunity to investigate this considerably further. Further, whether cryptocurrencies provide a diversification for equities is still an unsettled issue. We employ several econometric procedures, including wavelet coherence, and neural network analyses to rigorously examine the role of COVID-19 on the paired co-movements of four cryptocurrencies, with seven equity indices (matching countries particularly impacted by COVID-19). Our period of study includes one year prior to the onset of COVID-19, and one year during the pandemic, extending deeper into the pandemic period (February 2021) than most previous studies. We find co-movements between cryptocurrencies and equity indices gradually increased as COVID-19 progressed. However, most of these co-movements are either modestly positively correlated, or minimal, suggesting cryptocurrencies in general do not provide a diversification benefit during either normal times or downturns. An exception, however, is the co-movement of tether. Tether co-moves negatively with equities to an economically significant degree, both pre COVID-19, and considerably more during COVID-19. Co-movements between tether and equity indices spiked sharply during identified waves of the pandemic. Tether appears to be an important safe haven during times of market turmoil, consistent with investors seeking USD liquidity during periods of volatility.     

Tail risk contagion between international financial markets during COVID-19 pandemic

In this paper, we combine the time-varying financial network model and FARM-selection approach to analyze the tail risk contagion between international financial market during the COVID-19 epidemic. Since the tail risk acts as a global transmission channel, we use the sample of 19 international financial markets to explore the contagion of tail risk during the epidemic. We find that the COVID-19 epidemic increases the number of contagion channels in the international financial system. The clustering level of the financial system has a significant growth during the COVID-19 pandemic, and the number of risk drivers is also larger than risk takers. The key financial market of each international financial network is related to the epidemic country. We also consider the tail risk contagion in local financial markets and find that the COVID-19 pandemic has an important influence on the tail risk contagions in local network systems     

The financial impact of COVID-19: Evidence from an event study of global hospitality firms

This paper examines the daily abnormal stock price returns of a sample of 154 publicly-traded hospitality firms from 23 different countries representing over $400 billion in combined market capitalization around the time that COVID-19 was first viewed by stock market participants as a major—possibly even existential—threat. The findings of the study suggest that, financially, hotels performed better than restaurants, which themselves performed better than casinos. These findings are consistent with medical recommendations concerning the relative safety of various hospitality-related activities and, therefore, also with the tenets of financial market efficiency in the hospitality sector. Additional findings suggest that hospitality firms with strong balance sheets and income statements characterized by relatively low leverage ratios, high market value (consistent with a “too big to fail” mentality), and higher price/earnings ratios (implying higher relative profitability) all fared better than smaller, weaker firms. Although, in no case, did Bloomberg's proprietary environmental, social, and governance (ESG) variable possess any predictive power, variables reflecting cross-country cultural differences support Huynh’s (2020) finding that “individualism” was an important factor in explaining the economic impact of the COVID-19 pandemic on hospitality firms.     

The shock of COVID-19 and the shock of rapid vaccine development on the value of senior life settlement contracts

In this paper, we develop a model that can capture how COVID-19 and the subsequent rapid vaccine development against COVID-19 impacts the value of pools of senior life settlements. The pandemic unexpectedly boosted the mortality rates of senior citizens who had prior diagnoses of certain health conditions. Our model accounts for the existence and concentration of these COVID-19 comorbidities in portfolios of senior life settlements. It is the concentration of assets linked to the mortality rates of a group who is at elevated risk to COVID-19 and who is also the primary beneficiaries of the COVID-19 vaccine that we examine. We illustrate how the shock of the pandemic increases the value of senior life settlements and how the accelerated development and distribution of COVID-19 vaccines moderated this increase. Our model is general enough to simulate the impact on other financial contracts that are linked to individual mortality rates. These would include life insurance contracts, annuities, and health insurance policies.