Description:
The outbreak of COVID-19 has a huge negative impact on the firms’ business activities. This paper investigates the effects of COVID-19 pandemic on corporate investment and firm value from the real option perspective. Based on the real-option based model (ROM) proposed by Zhang (2000), we find that COVID-19 crisis accelerates low-profitability firms to reduce investment and exercise put options timely, thereby the value of put options is increased. This finding mainly exists in areas where the COVID-19 pandemic is worse and firms that did not receive government subsidies related to COVID-19. We also find that the value of put options is more pronounced for non-state-owned enterprises and firms with higher internal control quality. However, we do not find the change of growth option value of high-profitability firms during the COVID-19, which indicates that it is difficult for high-profitability firms to grasp the investment expansion opportunities under the pandemic. Our study shed light on the applicability of ROM and the importance of real option in firm valuation under the major public emergencies