War, pandemic, and stock performance: A case of artificial intelligence�adopting firms

: Firm performance is affected by extreme events including war and pandemic. In 2020, the COVID-19 pandemic weakened the performance of stock markets worldwide. Two years later, on 24 February 2022, the Russia-Ukraine war started and took a toll on the world economy, pushed up inflation, and increased the risk of severe adverse outcomes. There is a growing number of studies on the severity of stock market responses to the pandemic and the war in different regions and economies. The enormous increase in economic uncertainty has taught business executives valuable lessons about digital transformation and innovation. The IBM Artificial Intelligence (AI) Adoption Index shows a steady increase in global adoption of AI. However, studies regarding the impacts of the war and pandemic on AI-adopting firms are relatively new and scant. Using data of 231 AI-adopting firms worldwide in developed and emerging markets from January 2013 to April 2022, this paper examines how AI stocks respond to the COVID-19 pandemic and the Russia-Ukraine war. We employ the two-step system Generalized Method of Moments estimation of linear dynamic panel-data model estimation to estimate the firm, market, and extreme event effects on the AI stock performance. Understanding the impacts of different determinants on the success or failure of AI adoption will support firms and investors to manage risks and investment portfolios for sustainable performance. The results show that AI stocks respond to different extreme events differently. The performance of AI-adopting firms is not severely affected by the COVID-19 pandemic. The impact of the Russia-Ukraine war is more severe than the impact of the COVID-19 pandemic. AI-adopting firms in developed markets outperform those in emerging markets when the war broke out. In emerging markets, large firms benefit more from adopting AI in business than small firms.