Corporate investment and government policy during the COVID-19 crisis

We investigate the impact of the US government response to the COVID-19 pandemic, including stringent social measures and economic support packages, on corporate investment. The empirical results show that despite the overall decreased investment due to the economic impact of the pandemic, the government response to COVID-19 and economic supports have a positive effect on corporate investment after subtracting the impact of the pandemic on firm-level investment. We find that the impact of economic support packages on corporate investment is stronger than that of health containment policies. Further analyses show that the effect is weak in firms with higher levels of political risk and investment irreversibility, while being more pronounced in firms with higher technology intensity. Our findings provide fresh insights into the firms’ reaction to the government policies during the pandemic and suggest that both social measures and economic support are vital to restoring corporate investment as well as the economic recovery process.