The impact of operating flexibility on firms' performance during the COVID-19 outbreak: Evidence from China

Hao Liu; Xingjian Yi; Libo Yin

doi:10.1016/j.frl.2020.101808

The impact of operating flexibility on firms' performance during the COVID-19 outbreak: Evidence from China

Financ Res Lett. 2021 Jan:38:101808. doi: 10.1016/j.frl.2020.101808. Epub 2020 Oct 20.

Authors

Hao Liu¹, Xingjian Yi^{1

2}, Libo Yin³

Affiliations

¹ School of Finance, Guangdong University of Foreign Studies, Guangzhou, P.R. China.
² China Institute of Fortune Management Research, Guangdong University of Foreign Studies, Guangzhou, P.R. China.
³ School of Finance, Central University of Finance and Economics.

Abstract

This paper investigates the effect of firm-level operating flexibility on stock performance during the COVID-19 outbreak in China. We find that firm-level operating flexibility is significantly positively correlated with the cumulative abnormal stock returns that occurred during the event window, and this positive relation is more pronounced in firms in the provinces most affected by the epidemic. This positive relation is also more obvious in firms that have relatively fewer fixed assets. Therefore, our results provide direct empirical evidence that the real options embedded in operating flexibility played an important role during the COVID-19 outbreak.

Keywords: COVID-19; Event Study; Operating Flexibility; Real Options.