The Impact of SARS Epidemic on Firm Investment: Evidence from Listed Firms in China

The outbreak of SARS in 2003 brought a great shock to China’s socio-economic development, but empirical studies on its long-term economic impact are relatively scarce. We use the outbreak of SARS as a quasi-natural experiment, employing city-level case data and listed firm data to study the impact of the pandemic on fixed investment. Compared with cities without SARS cases, firms in cities with SARS cases significantly increased their fixed investment by 26.4%. After conducting a series of endogeneity tests, represented by PSM-DID, our conclusions remain robust. Credit conditions in the affected cities were relaxed after the epidemic. This shift led to a notable decrease in firms’ financial constraints and burdens, thereby offering substantial financing support for fixed investments. To offset the losses endured during the epidemic, firms bolster their investment in high-risk projects. The results of our heterogeneity analysis also support the two mechanisms.