COVID-19 Pandemic, Government Response and Corporate Investment

We investigate the impact of the US government response to the COVID-19 pandemic, including stringent social measures and economics support packages, on corporate investment. The empirical results show that the government response have a positive effect on corporate investment. The government response to the pandemic is not only influencing long-term investments, but also exhibits a positively significant impact on the short-term investments of the US firms. The interesting finding is that the effect of the government response on corporate investment varies cross-sectionally and is more pronounced on firms with a lower level of political risk. Further, corporate investment of firms with higher investment irreversibility react less positively to government’s policies during COVID-19. Our analyses provide fresh insights into the firms’ reaction to the government’s response to the pandemic and suggest that both social measures and economic support are vital to restoring corporate investment as well as economic recovery process.