Staring Death in the Face: The Financial Impact of Corporate Exposure to Prior Disasters

Abstract

We examine how firms’ exposure to prior disastrous events can influence their stock market footprint during the coronavirus crisis. While others have drawn comparisons between past pandemics and Covid-19, we argue that such comparisons are skewed due to the unprecedented reach and consequences of the latter. To better model the structural shock caused by Covid-19 in the USA, we look at the 9/11 terrorist attacks and specifically examine how firms based in New York City back then reacted to the associated financial turmoil. While 9/11 and Covid-19 are categorically different events, their short-term impacts on the stock market, and on New York exchanges in particular, are surprisingly similar. We find firms that financially ‘survived’ 9/11 also managed to do better – or suffer less – by about 7% in terms of stock returns during Covid-19, compared to control firms that were not exposed to 9/11. In a sense, we show that companies’ prior exposure to 9/11 partly ‘immunized’ them against the consequences of a similarly destabilizing event, albeit two decades later. Interestingly, the trading volume of exposed firms increased due to market buying pressures. Our analysis is robust to various financial proxies, alternative definitions of control firms and varying estimation windows.