Paper Spotlight: Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash

Rui Albuquerque

Yrjo Koskinen

Shuai Yang

Chendi Zhang








The COVID-19 pandemic, with its heavy toll on human lives, unemployment, and financial distress, should be considered as an important acid test for firms’ professed investments in their responsibility toward society. It is during such times that we can better understand how to interpret the Environmental, Social, and Governance (ESG) scores, standard proxies for firms’ corporate social responsibility, and what is really driving them. The paper “Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash,” by Rui Albuquerque, Yrjo Koskinen, Shuai Yang, and Chendi Zhang, has this objective. The authors show that U.S. firms with higher Environmental and Social (ES) scores were more resilient during the COVID-19 induced stock market crash: these stocks suffered lower stock price declines and lower volatility compared to other firms. The authors then investigate how ES policies build resiliency and look at theories of customer and investor loyalty. Firms with high customer and investor loyalty experienced the strongest stock price performance. Customer loyalty translated into higher operating profit margins of firms with high ES scores, even at a time when the economy as a whole was suffering through the first stages of a contraction. Overall, the results in the paper lend support to the view that consumer and investor loyalty play important roles in making high ES firms more resilient during stressful times.

Spotlight by Andrew Ellul
Photos courtesy of Rui Albuquerque, Yrjo Koskinen, Shuai Yang, and Chendi Zhang

Free Access to Papers about COVID-19

Our publisher, Oxford University Press, has pledged to make content related to COVID-19 freely accessible online. The Review of Asset Pricing Studies and The Review of Corporate Finance Studies have forthcoming special issues on COVID-19. These papers will be freely accessible online as part of OUP’s collection. You can read these papers as they become available on advance access (RAPS) and advance access (RCFS).

Paper Spotlight: Managerial Attributes, Incentives, and Performance

Jeffrey L. Coles

Zhichuan (Frank) Li

The determinants of executive compensation packages are fraught with empirical difficulties due to unobserved firm-level, CEO-level, and assortative matching characteristics. In the paper “Managerial Attributes, Incentives, and Performance,” just published in the August 2020 issue (Volume 9, Issue 2), Jeff Coles and Frank Li examine the relative importance of observable and unobservable firm- and manager-specific characteristics in determining two fundamental attributes of executive incentives, delta and vega. They find that manager fixed effects, that can capture managerial talent and risk aversion, account for a very significant portion of the variation in these executive incentives. This result is important because it sheds light on the limitations of empirical investigation on executive compensation so far: it is hard to find appropriate and comprehensive measures of these managerial characteristics among the observable managerial characteristics used in the existing literature. Jeff and Frank also find that managerial fixed effects of these compensation incentives could explain future firm policy, risk, and performance. It is quite surprising that some established relationships between executive incentives and firm outcomes are indeed driven by the manager-fixed-effects portions of delta and vega only. Importantly, the significant relative explanatory power of unobserved managerial heterogeneity found in this paper would suggest that both theoretical and empirical work will benefit from focusing on the roles and attributes of top managers.

Spotlight by Andrew Ellul
Photos courtesy of Jeffrey L. Coles and Zhichuan (Frank) Li

Forthcoming Papers

“The Macroeconomics of Corporate Debt” by Markus K. Brunnermeier  and Arvind Krishnamurthy

“The risk of being a fallen angel and the corporate dash for cash in the midst of COVID” by Viral Acharya and Sascha Steffen

“The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy” by Elena Carletti, Tommaso Oliviero, Marco Pagano, Loriana Pelizzon, and Marti G. Subrahmanyam

RCFS Blog Series II: Banks’ Contingent Capital Trigger Effects

In the RCFS blog, Professor Ellul discusses Boris Vallée‘s paper “Banks’ Contingent Capital Trigger Effects,” which won the RCFS’s 2020 Rising Scholar Award. Vallée finds that liability management exercises, a type of contingent capital trigger used by banks, are effective at improving banks’ capitalization levels. This finding is particularly important during the COVID-19 pandemic, when economic downturn is likely to put pressure on banks. Read the full post on the blog.

Paper Spotlight: Identifying the Real Effects of Zombie Lending

Fabiano Schivardi

Enrico Sette

Guido Tabellini








The impact of COVID-19 has driven many firms into financial distress, and policymakers around the world have responded with various emergency measures to support the business sector. While the immediate priority has been to get support out quickly to firms, over time more active decisions will have to be made on which firms should be supported. A potential danger that arises is that firms that should be allowed to shut down are kept alive as “zombie firms” through the provision of subsidized financing. The literature has found that diverting resources to zombie firms has a negative effect on healthy firms in the same industry. However, in the paper “Identifying the Real Effects of Zombie Lending,” Fabiano Schivardi, Enrico Sette, and Guido Tabellini argue that the literature may suffer from a serious identification problem. Often implicitly, and sometimes explicitly, firm performance is used to identify zombie firms. This is problematic, because a downturn in an industry may be associated with both declining performance of healthy firms and a narrowing of the performance gap between healthy and weak firms. There will therefore be a bias toward finding that healthy firms too suffer in a sector with a high proportion of zombie firms. In analyzing the effects of COVID-19, determining the extent to which zombie financing is a problem will be an important issue both for policymakers and for researchers.

Spotlight by Uday Rajan
Photos courtesy of Fabiano Schivardi, Enrico Sette, and Guido Tabellini

Forthcoming Papers

“Wages and Firm Performance: Evidence from the 2008 Financial Crisis” by Paige Parker Ouimet and Elena Simintzi

“Short-termism, Managerial Talent, and Firm Value” by Richard T. Thakor

“Resiliency of environmental and social stocks: an analysis of the exogenous COVID-19 market crash” by Rui Albuquerque, Yrjo Koskinen, Shuai Yang, and Chendi Zhang

“Identifying the Real Effects of Zombie Lending” by Fabiano Schivardi, Enrico Sette, and Guido Tabellini

Paper Spotlight: Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis

Lei Li

Philip E. Strahan

Song Zhang









The COVID-19 pandemic induced an unprecedented “stress test” on the financial system and the ability of banks to supply liquidity to the real economy. A new paper by Lei Li, Phil Strahan, and Song Zhang entitled “Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis” starts with the following important observation: In the last three weeks of March 2020, banks faced the largest increase in takedowns under existing credit lines ever observed – a weekly growth in demand for bank commercial and industrial loans that is 50 times the average weekly growth of the last half century! This unexpected increase in demand for liquidity, due to the COVID-19 shock, created the stress test on banks. The authors find that large banks serving large customers absorbed most of the demand. And, most importantly, pre-COVID financial conditions did not constrain these large banks’ liquidity supply.

Spotlight by Isil Erel
Photos courtesy of Lei Li, Philip E. Strahan, and Song Zhang