Measuring the costs, benefits, and risks to listed firms as a result of COVID-19 and other epidemic diseases.

The Wheeler Institute supports Professor Tahoun’s new research: Firm level exposure to epidemic diseases

Identifying which firms expect to gain or lose from the pandemic and which are most affected by the associated uncertainty as a disease spreads in a region or around the world

At the outbreak of the Covid-19 pandemic and as the virus spread globally in early 2020, firms’ primary concerns relate to the collapse of demand, increased uncertainty, and disruption in supply chains. Other important concerns include capacity reductions, closures, and employee welfare. This research will track these concerns over time to inform policymakers, scholars, and investors about the pressures firms in different sectors and regions face at a given point in time.

Following the passage of a series of emergency relief packages by Governments worldwide, officials now face the task of deploying over two trillion dollars to manage the economic fallout of the Covid-19 pandemic. Doing so effectively requires understanding which firms are negatively impacted and what challenges they are most immediately grappling with. For example, concerns about collapsing demand may be best addressed with monetary or fiscal stimulus, while concerns about collapsing supply chains or reduced ability to borrow may instead call for deploying resources to facilitate the flow of goods and shoring up balance sheets.

This research will help policymakers in all markets (i.e., least developed, developing and developed markets) to better understand the pressures and concerns faced by individual firms and sectors and to deploy effective and targeted interventions. We are already in touch with researchers at the White House Council of Economic Advisers and several research institutions who are looking into using our data.

The Impact

This research includes building a supervised machine-learning algorithm that can generate our exposure measures on a timely basis and the reason driving the exposure (e.g., negative demand shock, supply chain disruptions, production capacity reduction, retail store closures, concerns about employees’ welfare and labour market, financing concerns, etc.). We use methods from computational linguistics to generate novel measures of firm-level variables that are difficult or impossible to quantify using conventional data sources.

We use three basic approaches;

  • Measurement of the share of each firm’s earnings conference call that is devoted to the Covid-19 Pandemic, other (historical) epidemics, such as SARS and H1N1, risks associated with the Covid-19 pandemic and risks associated with other epidemics;
  • Measurement of the call participant’s sentiment about the Covid-19 Pandemic and other (historical) epidemics;
  • Using a machine-learning algorithm to classify the concerns call participants have about the effects of the Covid-19 Pandemic. For example, differentiating issues relating to supply chains from concerns about demand and financing. This will generate several variables for around 12,000 listed firms headquartered in 84 countries that track these concerns over time.

Covid-19 is not only the greatest public health crisis in almost a century, but is also driving an unprecedented economic contraction of a scale comparable only to the Great Financial Crisis of 2008 and the Great Depression. The economic fallout from this event will likely be felt for years to come and will no doubt remain a major focus of economic research for many years. This proposal will generate and publicly share detailed data on the firm-level impact of these events as they unfold. This will not only prove useful for our research, but should facilitate and stimulate the study of the social, economic, and political consequences of the pandemic more broadly.

Professor Tahoun

Who is involved?

The “Firm-Level exposure to Epidemic Diseases” project is part of the Wheeler Institute COVID-19 Research Support. Please see here to learn more.

The Wheeler Institute is seeking to understand, illuminate and offer solutions to the challenges created by COVID-19.  With an aim to identify the role of business in addressing these challenges and a focus on the implications and actions for those in developing countries.  We are now offering a number of grants to members of the LBS academic community for new research on issues related to the current crisis.

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