The Impact of Firm-level Characteristics on Stock Abnormal Returns amid Crises in Egypt versus the United States

Abstract

This paper conducts a comparative analysis on the variability of firm-level abnormal returns in Egypt and the United States (US) amidst three different recent global hazardous events (political, economic, and health). Moreover, it determines the impact of firm-level characteristics in reducing firms’ abnormal returns and identifies the most vulnerable industries during crises in both countries. The paper methodology is conducted in two stages on the selected sample for US and Egypt stock markets, DJIA and EGX30 indices, respectively. The first stage is an event study approach to determine the amplitude and direction of the response of the US and Egypt abnormal returns to each of the studied crises. The second stage encompasses cross-sectional regressions to study the impact of firm-level characteristics and vulnerable industries on the highest significant abnormal stock returns for each event in each country. This study has theoretical and practical contributions. To our knowledge, this is the first study to demonstrate the higher abnormal stock returns of the developing stock market, Egypt, compared to the developed stock market, US, in both health and economic crises under all different time intervals except the examined political crisis. Moreover, emerging and developed countries’ businesses should provide attentive management of this study’s significant firm-level characteristics to strengthen firms’ exogenous shock absorbency. Furthermore, this study’s identification of the most vulnerable industries in each market paves the way for developing supportive policies for these industries resulting in healthier and safer financial markets amidst crises. Keywords: Abnormal Returns, Stock Markets, Crises, Egypt, United States