When Japanese Stock Market Meets COVID-19: Impact of Ownership, China and US Exposure, ESG, and Liquidity Channels

The aim of this paper is to identify the factors affecting Japanese stock returns in the first quarter of 2020 during the coronavirus (COVID-19) outbreak. We use Japanese data because it experienced a severe decline of stock price like the US stock market while the number of infection was relatively moderate comparing with other countries such as China and the US. The findings are as follows. First, we focus on the ownership structure. We find that foreign ownership is negatively associated with abnormal returns, whereas ownership measurements related with traditional business groups, thought to be long-term investors, is positively associated with abnormal returns. Furthermore, we find a negative abnormal return for firms comprising the Nikkei 225 Index. Second, we find a negative abnormal return for China and the US FDI companies. Third, ESG intensity is negatively associated with abnormal stock returns. Fourth, we find that low liquidity firms, low cash-holding and high financial leverage firms, experience negative abnormal return.