Moderating Role of Financial Characteristics in Sectoral Performance During the Period of Economic Disruption: Evidence from the Covid-19 Pandemic

Abstract

The exogenous shock of the COVID-19 pandemic disrupted the equity market worldwide; however, the extent of its impact on the sectoral returns varied. Sectors like aviation, hospitality, and retail were badly affected as a result of the imposed lockdowns. Contrarily, the technology, e-commerce, pharmaceutical, and biotech sectors thrived for the same reasons. The present study evaluates the impact of the disruption of COVID-19 on firms from diverse sectors and examines the moderating effect of firms’ financial characteristics on sectoral performance. The study establishes a causal relationship between the firm’s cumulative abnormal returns generated during the various phases of the pandemic and their sectoral and financial characteristics using data for 317 firms listed on the National Stock Exchange of India. The results indicate that financial characteristics such as cash holdings, dividends, asset tangibility, and analyst coverage moderate the impact of the COVID-19 pandemic on sectoral performance. Findings provide evidence in support of the role of information asymmetry during economic disruptions.