New evidence on COVID-19 and firm performance.

The Chinese equity market plummeted and was roiled in crisis with the rapid spread of COVID-19 in the first quarter of 2020, but it also exhibits great resilience when the pandemic is gradually under control in China. In this study, we try to quantify the influence of regional COVID-19 outbreaks in 31 provinces on the stock returns of local listed firms by using a difference-in-difference framework. To our limited knowledge, we are the first to study provincial equity market performance during the spread of COVID-19. We show that when there is a COVID-19 outbreak in a province, treated firms first underperform by daily lower returns of 0.54% but abruptly regain their value by daily higher returns of 0.76%. Even though strict lockdown restrictions deteriorate economic prosperity, negative effects on firm values are only temporary in a maximum 20-trading-day window. Our results are also robust when subsamples of provinces and companies are considered.