Do COVID-19 Subsidies Threaten Shareholder Value?

As more companies tap government stimulus funds, more questions are being asked about how the use of taxpayer money may affect shareholders. To answer these questions, investors must assess how corporate behavior and stakeholder engagement will shape a company’s long-term outlook.

Government stimulus is an essential ingredient to combat the recessionary drag of the pandemic. For many companies, stimulus funds provide a cash lifeline that can make the difference between survival and extinction in today’s tough environment.

Complex Questions for Investors

Yet the provision of public grants or loans also creates questions for investors. Should companies be allowed to draw on taxpayer funds if they didn’t manage their capital responsibly before the crisis? Will shareholders get hurt if a company cancels dividends to accept public funds? And with dividends and buybacks being scaled back, how should investors evaluate company spending on employee engagement and community outreach during the pandemic?

These questions reflect the first test of the new era of stakeholder capitalism. In 2019, 181 US CEOs signed a declaration stating that their businesses would fully consider all stakeholders, not just shareholders. In the Business Roundtable statement, corporate leaders pledged to support the environmental and social health of communities in which they operate and to embrace sustainable practices. Now, companies face tough capital management decisions to balance business dynamics and shareholder interests with public health considerations and other social issues.