Collapse in demand tops corporate coronavirus concerns

New research involving over 11,943 listed companies from 80+ countries


The research involving over 11,943 listed companies from 80+ countries to assess the impact of the spread of Covid-19 and other epidemic diseases shows that the sudden collapse in demand, disruption to the supply chain and the closure of production facilities are some of the primary concerns.

However, 7.5% of these large listed companies see market opportunities (according to the research version circulated on 2 April 2020):

“Organizations that are spotting opportunities are most likely to have business lines in antiviral medication, testing equipment, and specialist pulmonary equipment. This may not be surprising, but there is also positive feedback from a small proportion of companies seeing chances in the market disruption associated with the crisis and others seeing branding opportunities,” said Ahmed Tahoun, Associate Professor of Accounting at London Business School. He continued:

“Nevertheless, the most commonly voiced corporate concern was for a sudden drop in demand as more countries adopt stringent ‘social distancing’ measures. Indeed, 44% of firms mention a ‘softening of demand’ as a looming issue.”

Disruption to the supply chain (a concern for 27% of companies) was another big issue, followed by the closure of production facilities (or retail closures), noted by 18% of businesses.

These are just some of the findings from new research carried out by Ahmed Tahoun of London Business School, Tarek A Hassan from Boston University, Laurence van Lent from Frankfurt School of Finance and Management, and Stephan Hollander from Tilburg University.

Dr Tahoun notes how corporate attitudes evolved during the first quarter of 2020, the period analyzed to date:

“Perhaps the most noteworthy finding is that, as the period progresses, more and more firms express concerns about the welfare of their employees. They describe measures such as restrictions on overseas travel and home working which they are implementing. Similarly, we observed growing concerns about firms’ supply chains. In fact, these concerns almost tripled during the first quarter of this year.”

To carry out the research, the team analyzed the transcripts of earnings calls held by the leaders of globally listed companies with their financial analysts since these are a matter of public record. The researchers developed text-based measures* of the costs, benefits and risks faced by the firms.

From these conversations, the researchers could discern widespread concern regarding the hit to cash flow:

“While uncertainty about the consequences of the outbreak are strong and growing, expectations about reductions in future cash flows catch the limelight in earnings calls and explain the stock market’s heavy response.”

There was also evidence that firms which had experience with SARS or H1N1 have more positive expectations about their ability to deal with the coronavirus outbreak. However, Dr Tahoun urges caution:

“Firms affected by SARS should not overestimate their readiness to deal with Coronavirus. Judging from the data we collected, the scale of corporate exposure to the coronavirus is unprecedented by earlier outbreaks of disease. The current pandemic spans all major economies and is pervasive across all industries. Primary concerns relate to the collapse in demand, increased uncertainty, and disruption in supply chains.”


*Computational linguistic algorithms were devised which rely on a computerized count of word combinations in transcripts of earnings calls. For example, the three most commonly used synonyms to denote uncertainty were (besides mention of the word ‘uncertainty’) ‘risk’, ‘threat’ and ‘unknown.’