This study examines the effect of geographic scope in mitigating the adverse impact of the COVID-19 pandemic in the real estate sector. Utilizing the Chinese setting over the two-month period in 2020 from the beginning of the outbreak to the successful containment of the spread of virus, we show that while the pandemic has negatively impacted real estate firm returns, firms with broader geographic scope and more geographically diversified property allocations have managed to better endure the crisis. We further find that firms with higher leverage report lower returns during the pandemic irrespective of their geographic scope, but larger firms can lessen the adverse impact of the pandemic only if they have adopted a more diversified strategy. Overall, our study provides novel evidence on the benefit of diversification by demonstrating the importance of geographic scope and diversification at times of crises. Specifically, we show corporate diversification could be especially useful to mitigate the negative stock market reactions resulting from the pandemic. Moreover, diversification could even become essential for larger firms that are expected by the market to be more diversified.
Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions
