How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
Abstract Firms with greater financial flexibility should be better able to fund a revenue shortfall resulting from the COVID-19 shock and benefit less from policy responses. We find that firms with high financial flexibility within an industry experience a stock price drop that is 26$\%$, or 9.7 per...
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Veröffentlicht in: | The Review of financial studies 2021-11, Vol.34 (11), p.5474-5521 |
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Hauptverfasser: | , , |
Format: | Artikel |
Sprache: | eng |
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Online-Zugang: | Volltext |
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Zusammenfassung: | Abstract
Firms with greater financial flexibility should be better able to fund a revenue shortfall resulting from the COVID-19 shock and benefit less from policy responses. We find that firms with high financial flexibility within an industry experience a stock price drop that is 26$\%$, or 9.7 percentage points, lower than those with low financial flexibility. This differential return persists as stock prices rebound. Firms more exposed to the COVID-19 shock benefit more from cash holdings. No evidence suggests that recent payouts worsened the average firm’s drop in stock price. Our results cannot be explained by a leverage effect. |
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ISSN: | 0893-9454 1465-7368 |
DOI: | 10.1093/rfs/hhaa134 |