Medical Boards and CEOs : Evidence from COVID-19 in China

About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID-19 outbreak in China as a natural experiment, we find that stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than firms without. This effect is four times the effect that financial variables such as leverage, short-term debt, and cash have on the stock price. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned. To shed light on the underlying mechanisms, we also show that senior executives with medical backgrounds enable their firms to react strategically, particularly in their attitude toward infection prevention policy and financing decisions. Overall, through disentangling macro shocks, this study underlines the importance of diversified executive human capital on firm performance