Assessing the Impact of COVID-19 on Corporate Investment Behavior

Umar Farooq,Suhaib Anagreh,Mosab I Tabash,Mohammed Alnahhal

doi:10.28991/esj-2021-sper-11

Abstract

The current wave of COVID-19 outbreak has created new strategical challenges for policy officials of the industrial sector across the world. The effect of COVID-19 is more in developing economies where industrial sector is already struggling for its stability. This study introduces the impact of COVID-19 on the corporate investment behavior of non-financial publicly listed firms of Pakistan. To achieve the objective, we employ the panel data ranging from 2010 to 2020 and apply the difference-in-differences (DID) model to quantifies the empirical relationship. The outcomes of DID model suggest that the pandemic period and treatment have a significant and negative impact on corporate capital investment behavior. During pandemic spread period, the enterprises have limited their investment into fixed assets due to less productive use of such assets. Similarly, industries that exist in high-impact areas face a negative investment growth rate due to quarantine policy, fewer social movements, and high installing cost of new machinery. However, this negative effect diminishes across those firms that have a quick cash inflow rate and more availability of bank loans. These two factors serve as a financial setback against the adversities of pandemic. By drawing upon the empirical reasoning on the effect of COVID-19, this study also presents possible solutions to alienate unfavorable impacts of this pandemic. Current analysis can be considered as an early attempt towards investigating the consequences of COVID-19 on investment decisions of industrial sector.JEL Classification: G32: G31: G40: C33 Doi: 10.28991/esj-2021-SPER-11 Full Text: PDF

Highlights

It is an emerging trend of economic and finance research to find out the potential impacts of COVID-19 spread on different sectors of economies [1,2,3]
This study mainly focuses on impact of COVID-19 on corporate investment behavior of non-financial publicly listed companies of Pakistan
This study empirically explores the impact of COVID-19 on corporate investment behavior of non-financial publicly listed companies for the period 2010 to 2020

Summary

Introduction

It is an emerging trend of economic and finance research to find out the potential impacts of COVID-19 spread on different sectors of economies [1,2,3]. The human causality rate is 4,200,412 till the date (https://covid19.who.int/). In this pandemic, almost all the activities of normal life are affected as it has created the severe threat of spread by travelling and social gatherings. Small business entities are struggling for their survival while large corporation entailing severe financial problems due to remarkable decrease in economic activities. This reduction in economic activities has deteriorated the transparent functioning of stock market, commodity market, and other trade activities [5]. We assess the impact of COVID-19 on corporate investment behavior

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Conclusion