Is Cash the Panacea of the COVID-19 Pandemic? Evidence from Corporate Performance

18 Pages Posted: 28 Jun 2021

See all articles by Michael Zheng

Michael Zheng

Texas Tech University - Rawls College of Business

Date Written: March 24, 2021

Abstract

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

Zheng, Michael, Is Cash the Panacea of the COVID-19 Pandemic? Evidence from Corporate Performance (March 24, 2021). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3869922

Michael Zheng (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

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