DP15022 Pandemics, Intermediate Goods, and Corporate Valuation

Author(s): Luc Laeven
Publication Date: July 2020
Keyword(s): cash, Intermediate goods, liquidity, Pandemic, Valuation
JEL(s): D22, D57, G01, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15022

We evaluate the role of input-output linkages and social distancing in transmitting the COVID-19 shock to the valuation of U.S. corporates. Using a new dataset on sectoral dependence on the use and sale of intermediate goods, we find that firms that depend on the sale of intermediate goods to sectors affected by social distancing are more affected by the crisis. We estimate that the indirect effect of social distancing through input-output linkages is at least as important as its direct effect. Several tests are consistent with the view that larger firms and firms with cash buffers are better able to absorb the pandemic shock.