Local Dependence, Exogenous Shock, and Firm Value : Evidence from Korea’s COVID-19 Crisis

On 19 February 2020, the Korea Centers for Disease Control and Prevention (KCDC) reported that at least 11 cases of COVID-19 belonged in the same, initial cluster as Shincheonji Daegu church, with confirmed cases then standing at 31. This was the earliest news coverage of the COVID-19 “super-spreader” Daegu/ Gyeongsangbuk since the outbreak had begun in South Korea. In this paper, I concentrate on the relationship between the occurrence of a “super-spreader” and a negative stock market reaction during the earliest phase of the COVID-19 outbreak. Using location data of public firms’ headquarters, I find that local firms are more negatively affected by the announcement of this exogenous shock than others. However, local firms’ accounting performance and long-term stock market performance are insignificant, or even positive. Overall, this study sheds light on understanding the relationship between changes of local public health risk and stock market reaction.