Is Cash the Panacea of the COVID-19 Pandemic? Evidence from Corporate Performance
18 Pages Posted: 28 Jun 2021
Date Written: March 24, 2021
This study investigates the impact of COVID-19 crisis on corporate investment and financing policies. Using a difference-in-difference approach, I find while firms suffer from a real negative shock from the pandemic on average, firms with an abundant cash reserve prior to the crisis outperform firms without. Consistent with the precautionary motive behind corporate cash holdings, this paper demonstrates the effect of cash holdings is meaningful to mitigate adverse effect of the aggregate market. My finding also highlights the difficulty in estimating the optimal cash level when rare market condition is considered.
Keywords: COVID-19, Cash, Investment, Financing, Payout, Liquidity, Risk management
JEL Classification: G01, G31, G32, G35
Suggested Citation: Suggested Citation