Impact of operational fragility on stock returns: Lessons from COVID‐19 crisis. (3rd February 2022)

• Record Type: Journal Article
• Authors: Bansal, Avijit; Gopalakrishnan, Balagopal; Jacob, Joshy; Srivastava, Pranjal
• Is Part Of: International review of finance. Volume 22:Number 2(2022)
• Page Start: 365
• Page End: 398
• Publication Date: 2022-02-03
• Subjects: COVID‐19 -- financial flexibility -- group affiliation -- India -- operating leverage -- operational fragility; Finance -- Periodicals; Financial institutions -- Periodicals; 332.673
• DOI: 10.1111/irfi.12374
• Languages: English
• ISSNs: 1369-412X

Abstract

Abstract: We examine how the market valuation of firms varies on account of their operational fragility that makes them vulnerable to the COVID‐19 pandemic. Using the data on plant location that uniquely identifies the vulnerability of firms to operational disruptions, we find that firms with plants located in zones susceptible to higher infections earn significantly lower returns. For firms with high operational fragility, the marginal value of financial flexibility and operating flexibility is higher. The adverse impact of the operational fragility is lower for firms affiliated with the larger business groups. The paper identifies unique channels associated with the pandemic that impact firm value.