The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID

Review of Corporate Finance Studies (Forthcoming)

NYU Stern School of Business Forthcoming

54 Pages Posted: 8 Oct 2020

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Sascha Steffen

Frankfurt School of Finance & Management

Multiple version iconThere are 4 versions of this paper

Date Written: October 3, 2020

Abstract

Data on firm-loan-level daily credit line drawdowns in the United States expose a corporate “dash for cash” induced by the COVID-19 pandemic. In the first phase of the crisis, which was characterized by extreme precaution and heightened aggregate risk, all firms drew down bank credit lines and raised cash levels. In the second phase, which followed the adoption of stabilization policies, only the highest-rated firms switched to capital markets to raise cash. Consistent with the risk of becoming a fallen angel, the lowest-quality BBB-rated firms behaved more similarly to non-investment grade firms. The observed corporate behavior reveals the significant impact of credit risk on corporate cash holdings.

Keywords: COVID-19, credit lines, credit risk, cash holdings, fallen angels

JEL Classification: G01, G14, G32, G35

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Steffen, Sascha, The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID (October 3, 2020). Review of Corporate Finance Studies (Forthcoming), NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3704158 or http://dx.doi.org/10.2139/ssrn.3704158

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business ( email )

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HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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Centre for Economic Policy Research (CEPR) ( email )

London
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Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

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Germany
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HOME PAGE: http://www.sascha-steffen.de

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