Corporate liquidity, supply chain and cost issues awareness within the Covid-19 context: evidence from us management reports’ textual analysis
| DOI | https://doi.org/10.1108/CG-09-2020-0399 |
| Published date | 07 April 2021 |
| Date | 07 April 2021 |
| Pages | 1155-1171 |
| Subject Matter | Strategy,Corporate governance |
| Author | Athanasios Fassas,Sotirios Bellos,George Kladakis |
Corporate liquidity, supply chain and cost
issues awareness within the Covid-19
context: evidence from us management
reports’textual analysis
Athanasios Fassas, Sotirios Bellos and George Kladakis
Abstract
Purpose –The purpose of thisstudy is to assess the management responses and intentionsof 3,279 US
firms from all industries, before and after the coronavirus outbreak, to identify the level of managerial
concernabout specific financial issues andpotential economic costs of the COVID-19pandemic.
Design/methodology/approach –This paper uses textual analysis of official management reports to
search for specificsingle words in five domains related to corporatefinance and governance. This paper
focuses on the relative frequency of single words using a weightingscheme that adjusts for document
length and for the inverse documentfrequency. This paper then uses t-tests to investigate the univariate
differencesacross groups of reports before and afterthe US stock market crash in February 2020.
Findings –The applied textual and empirical analysis provides evidence that firms’ primary concerns
relate to the disruption in supply chains, liquidity need and coronavirus-led recession. This paper also
shows that the main cost reduction measure they are considering is salary reduction, rather than
workforce reduction. This paper also shows evidence that firm managers are rather swift to provide
coronavirus-relatedinformation in theUS Securities and Exchange Commission(SEC) corporate filings.
Practical implications –The findings provide a primary view of the directions, on which US firms will
move in the nearfuture, and thus, they can be used as tools for the formulationof appropriate government
policies in the correspondingsectors, which could mitigate the economic risks related to the pandemic.
At the business level, the disseminated knowledge can assist firms either in the same sector or in
similar/related sectors to ‘‘locate’’ themselves within the map of the pandemic and to adjust or align
correspondinglytheir strategies and decisionsas they will have a view of the biggerpicture.
Originality/value –The empirical analysis divulges US firms’ management primary concerns after the
COVID-19 outbreak, and thus, offers insights to the processes taking place in the US business
communityand the formulating new corporateand economic reality.
Keywords Textual analysis, Coronavirus, COVID-19, Pandemic, Corporate disclosures, SEC filings
Paper type Research paper
1. Introduction
The words selected and the language used by managers to describe their companies’
operations have long been shown to be correlated with future stock performance, earnings
and other significant corporate events. This study attempts to analyze managements’
responses and intentions of 3,279 US firms from all industries, before and after the
coronavirus outbreak, by using a textual analysis on official management reports to search
for specific single words in five domains of corporatefinance and governance issues.
The COVID-19 pandemic was a sudden and unexpected shock for most of the world
economies, which led them into recession. Nevertheless, pandemicsare not a new problem
Athanasios Fassas is based
at University of Thessaly,
Volos, Greece.
Sotirios Bellos is based at
CITY College, University of
York Europe Campus,
Thessaloniki, Greece and at
the South East European
Research Center,
Thessaloniki, Greece.
George Kladakis is based
at Management School,
The University of Sheffield,
Sheffield, UK.
JEL classification –G30, G34,
G39
Received 11 September 2020
Revised 31 January 2021
Accepted 9 February 2021
DOI 10.1108/CG-09-2020-0399 VOL. 21 NO. 6 2021, pp. 1155-1171, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1155
for mankind. Actually, considering the event in its historical scale, it could be stated that
pandemics consist a regular pattern in human history (McNeill, 1998). However, apart from
the effects on physical human health, which is of primary importance, pandemics can
severely affect the economy too. The Human immunodeficiency virus/acquired
Immunodeficiency syndrome (HIV/AIDS) pandemic, for example, had significant adverse
effects on human capital, influencing a series of macroeconomic indicators (Lamontagne
et al.,2010
) but also political processes (Barnett and Whiteside, 2002). In addition, the
economic impact of a pandemic todayis significantly greater than it was in the past, due to
the several features of the world we live in, such as high levels of economic integration and
trade, widespread mass travel and rapid modes of transport (Davies, 2020, p. 133). The
surprising nature of the current disease, its galloping spread, the extreme measures that
were taken in most of the countries, combined with huge amounts of scientific ignorance,
exaggerations and populism, are probably indications that this pandemic will also act as a
catalyst for various significant changes, while the world is already characterized not onlyby
its economic globalization but also by its deeply rooted differences and antagonisms. So,
the current pandemic might not have fatal effects to sectors, which are found in a rather
healthy shape, but it will surely bring down those which are in a poor state or vulnerable. In
any case, the world after the pandemic will be a new world with new standards, conditions
and balances (Sharfuddin, 2020). The responses to these unprecedented events might
highlight the critical parameters that will formulate the shape of the world in the post-
pandemic era.
In the economic dimension, itmight be early to assess precisely what the world will look like
after the COVID-19 pandemic. The main tools in hand are the respective financial
statements, which incorporate the pandemic outbreak and its effects and reflect
managements’ perceptions and concerns. In this regard, the textual analysis of the
management reports of approximately3,300 US firms from all sectors is used to assess new
information regarding the impact of the recent pandemic on the most advanced economy
today, the US. Assessing these effects will help analyze the future course of industrialized
economies that follow the same patterns with the US. Existing empirical literature
demonstrates how important are corporate disclosures in the resolution of information
asymmetry problems on capital markets (Bacha and Ajina, 2019;Healy and Palepu, 2001;
Sengupta, 1998), accommodating the achievement of both economic targets, cost of
capital (Cuadrados-Balesteros et al., 2016) and social responsibilityobjectives (Wang et al.,
2018).
As the economic and financial consequences of the pandemic are still unfolding and will
probably be long-lasting too, we base our empirical analysis of COVID-19 on alternate data
resources. Even though quantitative information extracted from financial statements
significantly predicts stock market performance, textual analysis of corporate disclosures
has also emerged as an additional tool to help reduce information asymmetry (Chakraborty
and Bhattacharjee, 2020). Several studies, which focus on similar methodologies, are using
the company reports as they are comprehensive and as such, they form the route of
information for the investors (Lo et al.,2017). However, there is a strand in the literature that
defies this ability to extract reliable information from the management reports (Easley and
O’Hara, 2009;Kravet and Muslu, 2013), as the reference of a risk parameter can lead to
greater fears and uncertainties with the results that were discussed already before. Getting
to the contemporary issue of the COVID-19,Wang and Xing (2020) express their skepticism
on whether the discussion of the issue in the management reports can provide an accurate
portrayal of the underlying situation, beyond the testimony of the issue itself.
The business originated information, which is included in the business reports has another
role as well, which is to treat uncertainty and tame adverse effects and excessive market
reactions. Based on the theory of Duffie and Lando (2001),Chiu et al. (2018) show that
credit default swap spreads decrease significantly after risk factor disclosures are made
PAGE 1156 jCORPORATE GOVERNANCE jVOL. 21 NO. 6 2021
To continue reading
Request your trial