Source: South China Morning Post —
The COVID-19 pandemic has created havoc around the world. Not only did it exact a heavy toll in the loss of human life, but it also constituted one of the biggest shocks to the global economic order in modern history. Consider that in March 2020, as the world became increasingly aware of the spread of the pandemic, global stock markets fell by over 30 percent as investors panicked en masse. Its economic effects were felt everywhere, with neither emerging markets or developed economies spared.
Given the massive economic impact of the pandemic, much effort has been focused on whether and how some companies were better able to weather the uncertainty it brought about, while others fell by the wayside. It is with this in mind that a group of researchers, including at The Chinese University of Hong Kong (CUHK) Business School, chose to look at the role of geographical diversification in allowing companies to outperform during the outbreak.
The study Geographic Scope and Real Estate Firm Performance during the COVID-19 Pandemic was conducted by Desmond Tsang, Associate Professor at the School of Hotel and Tourism Management and Co-Director of the Centre of Hospitality and Real Estate Research, at CUHK Business School, in collaboration with Dr. Xiaoling Chu at The University of Hong Kong and Prof. Chiuling Lu at National Taiwan University. It found that companies which spread their operations across a wider geographical region tended to be viewed by investors as being better able to withstand the volatility during the pandemic, and this was reflected in their performances in the stock market.
“Our aim in this study is to look at how geographic scope and diversification allow firms to weather the economic volatility brought about by the spread of COVID-19 during the pandemic,” says Prof. Tsang. “Unlike other episodes in recent history such as the Global Financial Crisis of 2008, the pandemic affects different places in a different manner, depending on the severity of positive cases in a given region as well as the local government response. This served as an ideal backdrop for us to test out our theories.”
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