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School of Business and Management

Staring Death in the Face: The Financial Impact of Corporate Exposure to Prior Disasters

When: Friday, November 27, 2020, 12:00 PM - 1:00 PM
Where: Online Event,

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This event is part of the Behavioural Finance Seminars on Corona Crisis: Online series by Professor Yaz Gulnur Muradoglu. We examine how firms’ exposure to prior disastrous events can influence their stock market footprint during the Coronavirus crisis.

Authors: Onur Kemal Tosun (Cardiff University), Arman Eshraghi (Cardiff University), Gulnur Muradoglu (Queen Mary University of London)

Abstract: While others may draw comparisons between past pandemics and Covid-19, we argue that such comparisons are skewed due to the unprecedented reach and consequences of the latter. To better model the structural shock caused by Covid, we look at the 9/11 terrorist attacks and specifically examine how firms based in New York City back then reacted to the associated financial shocks. While 9/11 and Covid-19 are categorically different events, their short-term impacts on the stock market, and on New York exchanges in particular, are highly similar. We find firms that financially ‘survived’ 9/11 also managed to do better – or suffer less – by about 7% in terms of stock returns during the Coronavirus period, compared to control firms that were not exposed to 9/11. In a sense, we show that companies’ prior exposure to 9/11 partly ‘immunised’ them against the consequences of a similarly shocking event albeit two decades later. Interestingly, trading volume of immunised firms increases due to buying pressures in the market. Our analysis is robust to various financial proxies, alternative definitions of control firms and varying estimation windows.