The risk of being a fallen angel and the corporate dash for cash in the midst of COVID

Viral Acharya and Sascha Steffen

No 15073, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Data on firm-loan-level daily credit line drawdowns in the United States reveals a corporate “dash for cash†induced by COVID-19. In the first phase of extreme precaution and heightened aggregate risk, all firms drew down bank credit lines and raised cash levels. In the second phase following 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: Liquidity; Liquidity risk; Cash holdings; Bank lines of credit; Pandemic (search for similar items in EconPapers)
JEL-codes: G01 G14 G32 G35 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban, nep-pay and nep-rmg
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Citations: View citations in EconPapers (212)

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Related works:
Journal Article: The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID (2020)
Working Paper: The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID (2020)
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