Firm Finances and the Spread of COVID-19: Evidence from Nursing Homes

Abstract

We find that firms' financial resources play an important role in mitigating the spread of COVID-19. We study nursing homes -- whose residents account for over one-third of all U.S. COVID-19 deaths -- at a time when investment in risk mitigation was costly and critical. Facilities with less liquidity and those experiencing more severe cash flow shocks had more cases of COVID-19. The importance of cash flow is further supported by tests exploiting state-level variation in Medicaid reimbursement expansion. Evidence on personal protective equipment supplies suggests a lack of financial resources leads to lower investment in risk mitigation.

Keywords: COVID-19, financial constraints, stakeholder welfare

JEL Classification: G00, G30, I1, I10