Covid-19 and Firms' Stock Price Growth: The Role of Market Capitalization

This paper studies the role of capitalization on firms' stock price growth in response to new cases of Covid-19 infections in the United States. Controlling for firm and time fixed effects, our panel model estimates show that the effect of new cases of Covid-19 infections on firms' stock price growth is significantly increasing in capitalization: For each one standard deviation increase in capitalization, a one standard deviation increase in new cases of Covid-19 infections increases the weekly growth rate of firms' stock prices by about 0.7% points. Effects of capitalization on the impact that Covid-19 infections have on firms' stock price growth are largest in the travel, tourism, and hospitality sector. Smaller but still positive effects of capitalization are present in the pharmaceutical products, high-tech, and banking and finance sectors. The results are robust to controlling firms' elasticity of demand, productivity, financial constraints, managerial compensations, and aggregate money growth and economic activity.