How Deadly Is Financial Leverage? Evidence from Care Homes during the COVID-19 Crisis

99 Pages Posted: 9 Feb 2022 Last revised: 13 Oct 2024

See all articles by Peter Morris

Peter Morris

Independent

Ludovic Phalippou

University of Oxford - Said Business School

Betty H.T. Wu

University of Glasgow Adam Smith Business School

Date Written: January 25, 2022

Abstract

Once information about leasing and corporate structure is incorporated into the way financial leverage is calculated, care homes controlled by private equity firms no longer display higher COVID-19 death rates. Death rates become strongly related instead to financial leverage. Highly levered care home groups have a death rate twice as high as that of unlevered care home groups before the government provided financial support (i.e., during the first wave), and afterwards death rates are similar. Highly levered care home groups cut costs more aggressively and experienced the largest drop in cash reserves. Our results illustrate the importance of accurately measuring financial flexibility.

Note:
Funding: None to declare.

Declaration of Interests: None to declare.

Suggested Citation

Morris, Peter and Phalippou, Ludovic and Wu, Betty H.T., How Deadly Is Financial Leverage? Evidence from Care Homes during the COVID-19 Crisis (January 25, 2022). Available at SSRN: https://ssrn.com/abstract=4017507 or http://dx.doi.org/10.2139/ssrn.4017507

Peter Morris

Independent ( email )

Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Betty H.T. Wu

University of Glasgow Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

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