Corporate response during COVID-19

The report analyses data from Truvalue Labs ESG data to assess sentiment across thousands of news sources, such as traditional media, blogs, and industry publications. The assessment includes gathering data from over 100,000 sources, with no reliance on corporate self-reported data. Using machine learning and natural language processing in eleven languages, the report found that firms with more positive sentiment around their response to COVID-19 may have seen more negative returns.

Data and sample

The study uses various data sources to understand the drivers of stock returns during the COVID-19 crisis. The dataset includes companies from 69 Global Industry Classification Standard (GICS) industries and 158 sub-industries affected by COVID-19 differently.

The study also uses a sentiment-based measure (economy), constructed using keywords to analyse company’s economic prospects. The analysis showed that firms investing in stakeholder relations during the COVID-19 crisis experienced better stock market performance than those that did not invest in stakeholder relations during the crisis.

Results and robustness tests

A series of robustness tests and alternative tests have been carried out to ensure that the study’s results are accurate and dependable. The study estimates all relationships within the 69 GICS industries and presents results controlling for 158 sub-industry effects. Additionally, the study controls for the revision in analyst earnings per share (EPS) forecasts during the crisis period, which proxies for the expected short-term effects of COVID-19 on the company.

The report also uses a matched sample analysis, where results are controlled for other factors that might affect a company’s crisis stock returns. These factors include firm size, profitability (ROE), dividend yield, valuation ratios, liquidity, institutional money holdings and flows, momentum, and leverage. The study’s results are robust to including controls for measures of a firm’s innovation capacity, intangible assets, and environmental, social, and governance (ESG) ratings.

Moderating relations

The study considers the modulating factors that might impact a firm’s crisis stock returns. The study introduces country-level variables that may moderate the relation between corporate responses and stock returns, such as measuring customer satisfaction (customer) and attracting talent (talent). The analysis indicates that in countries where firms focus more on customer satisfaction, a two-standard deviation increase in the corporate response measure translates to 3.52% and 3.92% higher stock returns, respectively.

Conclusions and implications

The paper concludes that stakeholder relations could be valued as strategic resources, particularly where stakeholder investments represent credible and costly commitments to stakeholders. Moreover, the report suggests that the application of machine learning to big data represents a promising technology to measure corporate responses and associated crisis management efforts. Future research could examine how corporate responses impact employee morale or customer behaviour. The study offers insight into the impact and effectiveness of corporate responses during a crisis that is relevant to business owners, stakeholders, and investors.