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When the Market Went Viral: COVID-19, Stock Returns, and Firm Characteristics

We examine how the market valuation of firms varies on account of characteristics that make them vulnerable to the COVID-19 pandemic across different stages of the crisis. Using plant location data that uniquely identify the vulnerability of firms to operational disruptions, we find that firms with plants located in zones susceptible to higher infections earn substantially lower returns. Firms unaffiliated to any business group earn lower returns compared to affiliated firms, implying their lower access to shared resources. Affirming the role of liquidity in weathering the crisis, the marginal value of financial flexibility is higher for firms with facilities in vulnerable zones and unaffiliated firms. We also find that firms with higher inflexibility in re-scaling operations earn lower returns. We also document that the signaling value of insider buying increases during the pandemic when information on the firm-level impact is scarce. The paper identifies unique channels through which this pandemic impacts the market value of firms.