Is COVID-19 An Indiscriminate Tsunami? Bank Immunity and Variation in Government Policy Responses

Abstract

This paper examines the impact of bank-specific factors and variation in the stringency of government policy responses on bank stock returns as a response to the COVID-19 pandemic. We use a sample of 1927 publicly listed banks from 110 countries for the period of the first major wave of the COVID-19: January to May 2020. Our findings indicate that stock returns of banks with higher capitalization, more diversification, higher deposits, lower non-performing loans, and larger size are more resilient to the COVID-19 pandemic. While the environment and governance scores of banks do not have a significant impact, higher social and corporate social responsibility (CSR) strategy scores of banks intensify the negative stock price reaction to the COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt &contract relief, and fiscal measures from governments.