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Harvard Law School Forum Showcases Research by Neeley Finance Professors

The research is regarding retail CEO decisions during the Covid-19 Pandemic. TCU Neeley professors examined the way decisions by retail CEOs influenced transmission rates and employee safety complaints.

September 23, 2022

By Tori Couch

Public policies aimed at protecting public health while maintaining an open economy have dominated public discourse since the start of the COVID-19 global pandemic.

Focusing solely on public policies ignores the effect retail businesses had on COVID-19 transmission rates throughout the early stages of the pandemic, according to a study conducted by four professors in the TCU Neeley School of Business.

The post featured on Harvard Law School Forum on Corporate Governance is based on research by the TCU Neeley School of Business finance professors and provides insight into the way decision making by retail CEOs impacted COVID-19 transmission rates in the early stages of the pandemic.

The article “CEO Political Leanings and Store-Level Economic Activity during COVID-19 Crisis: Effects on Shareholder Value and Public Health” was co-authored by John Bizjak, the Robert and Maria Lowdon Chair in Finance and TCU Neeley Professor of Finance, Associate Professor of Finance Swami Kalpathy, Associate Professor and Beasley Fellow in Finance Vassil Mihov, and Assistant Professor of Finance Jue Ren.

Their research was published in the October issues of the Journal of Finance.

The publication showed that a CEO’s political leanings affected how a firm evaluated the trade-offs between increasing firm-level economic activity and prioritizing public health concerns.

Past academic research indicated political and cultural beliefs affected an individual’s attitude toward COVID-19. In general, people identifying as Democrats adopted stricter social distancing practices compared with Republican-leaning counterparts, according to research findings.

This provided a framework for analyzing how and why CEOs responded a certain way during the pandemic.

Firms led by a Democratic-leaning CEO implemented stricter COVID-19 policies and limited in-store visits. Republican-leaning firms encouraged in-store customers, had less restrictive COVID-19 policies, and were more likely to experience an increase in customer traffic to their retail establishments.

Shareholders benefitted from this decision. On average, abnormal stock returns rose 0.25% when store traffic increased 1% and the firms could preserve shareholder value when the market fell in February and March 2020.

These economic benefits did bring higher COVID-19 transmission rates into the local community. An increase in workplace safety complaints filed with OSHA had a positive correlation with more in-person interactions.

These different approaches did not necessarily display a disregard for economic growth or public health. They reflected difference in political attitudes.

The researchers noted “…differences in ideology do not mean that Republicans solely prioritize the economic benefits of opening the economy over the potential public health risks, or that Democrats are unaware that restricting commerce to provide public health benefits can have detrimental effects on the economy. Political leanings, however, are likely to tip the scale in how political ideology affects prioritizing the potential trade-offs.”

Swami Kalpathy and Vassil Mihov stated that their article also sheds light on the current debate on a firm’s focus on shareholder value versus broader stakeholder orientation, in the context of the pandemic.  The authors’ COVID-19 research provides immediacy and impact on economic activity and society.

Read the post featured on the Harvard Law School Forum on Corporate Governance here.

Photo: John Bizjak

John Bizjak

Robert and Maria Lowdon Chair of Business Administration
Finance Department

Neeley 3127

Photo: Swaminathan Kalpathy

Swaminathan Kalpathy

Associate Professor
Finance Department

Neeley 3128

Photo: Vassil Mihov

Vassil Mihov

TCU Ralph Lowe Energy Institute Faculty Fellow
Theodore and Beulah Beasley Faculty Fellow
Finance Department

Neeley 3131

Photo: Jue Ren

Jue Ren

Assistant Professor
Finance Department

Neeley 3105