The COVID-19 pandemic has resulted in a massive shift in the number of employees working from home (WFH). Bick, Blandin, and Mertens (2020) document that the fraction of the workforce WFH increased from roughly 8% in February 2020 to more than 35% by May of 2020. Further, the shift towards WFH is unlikely to fully revert after the pandemic ends. A recent survey by PWC finds that more than 50% of workers are interested in working from home at least three days a week even after COVID-19 is no longer a concern (PWC, 2021).

While many workers are clearly enthusiastic about WFH, the value implications to corporations is unclear. Proponents of WFH argue that it can enhance firm value by increasing worker productivity (e.g., due to eliminating commuting and minimizing distractions) and/or allowing companies to attract and retain talented employees who value this flexibility. On the other hand, critics argue that WFH can encourage shirking, reduce focus, limit opportunities for valuable collaboration, and potentially attract lower-quality employees. Existing empirical evidence is also mixed.

However, there is also evidence that WFH can attract less productive workers (Emanuel and Harrington, 2020) and leads to declines in performance for more cognitively challenging tasks (Kunn, Seel, and Zegners, 2020). In this paper, we examine the consequences of WFH among sell-side analysts. Sell-side analysts provide an excellent laboratory for studying the consequences of WFH for several reasons.

Authors: Russell Jame and Marcus Painter

This paper explores the shock of school closures caused by the COVID-19 pandemic to study the effect of domestic responsibilities on analysts’ attention at work. School closures significantly reduce the forecast timeliness of female analysts rather than that of male analysts. Using manually-collected data on whether analysts have children, I show that mothers are 20% less likely to issue timely forecasts after school closures. Professional women are more likely to get distracted from work by domestic duties, which makes it harder for them to be as successful as their male counterparts in competitive industries.

Author: Mengqiao Du

We provide the first evidence on the efficacy of long-distance working arrangements between CEOs and firms. Long-distance CEOs underperform according to operating performance, insider reviews, and announcement returns to CEO departures. These effects are stronger when the CEO’s commute is longer and crosses multiple time zones. Using the quality of schools available to the CEO’s children as an instrument for the decision to commute, we argue that these effects are causal. CEOs’ private costs of working remotely have long-run effects on their strategic decisions and on the future of their firms. Remote CEOs are 60% more likely to sell their firm to an acquirer, and they do so at bargain prices.

Authors: Ran Duchin and Denis Sosyura

Using unique daily data of payment defaults on suppliers in France, we show how the trade credit channel amplified the demand shock that firms met during the COVID-19 crisis. That channel dramatically increased short-term liquidity needs during the first months of the pandemic. A one standard deviation higher ratio of net debt to suppliers over sales increases the probability of payment default by roughly a third in sectors that were forced to shut down. This effect is extremely heterogeneous across sectors as well as across firms, depending on financing constraints. Understanding the cyclical trade credit dynamics is central for policy makers seeking to enable illiquid but solvent companies to remain afloat until revenues recover.

Authors: Benjamin Bureau, Anne Duquerroy and Frédéric Vinas

We document a significant but declining size effect and cyclicality in sales growth within U.S. public firms, including the COVID crisis. The patterns differ significantly from those documented in prior studies which focus on samples dominated by private firms. Small public firms grow faster than large public firms since the start of our sample period in 1974, especially during expansions, but the gap declines significantly starting in early 2000s and closes entirely during the 2020 recession. Contrary to the prevailing view in the literature, financing constraints do not explain the size effect, and the effect is stronger in 2020 than in the Great Recession during which constraints were, arguably, more severe. We examine alternative explanations for the size effect, including diversification, fallen angels, and differences in investment opportunities. Preliminary analysis shows evidence inconsistent with the first two hypotheses. The size effect increases market shares of large firms in recession, but this is counteracted by new entry, thus, mitigating the effects on industry structures across business cycles.

The outbreak of the Covid-19 pandemic massively increased uncertainty about firms’ cash flows and access to financial markets. We examine its effect on firms’ strategies for preserving cash by suspending dividends and share repurchase programs and raising new funds through bond and equity issues. Our estimates suggest that between March and December 2020 US firms saved a combined $86bn by suspending or reducing dividend payments and another $140bn from suspending buybacks. We identify a short list of firm and stock characteristics that explain most of the cross-sectional variation in firms’ payout and financing decisions. We show that the expansive monetary policies pursued by the Federal Reserve in the early phase of the pandemic crucially affected the timing and sequencing of firms’ decisions. Announcement effects on stock returns were highly unusual during the pandemic as dividend and buyback suspensions were associated with a more rapid recovery in firms’ stock prices, consistent with investors interpreting them as prudent actions that helped reduce risks.

Authors: Davide Pettenuzzo, Riccardo Sabbatucci and Allan Timmermann