 Firms’ COVID-19 Pandemic Exposure and Corporate Cash Policy: Evidence from ChinaZhongda He, Sandy Suardi, Kai Wang and Yang Zhao Economic Modelling, 2022, vol. 116, issue C Abstract: The COVID-19 pandemic adversely impacted economic activity, decreased corporate revenues, and magnified cash flow fluctuations. We study how Chinese listed firms' COVID exposure influences their cash holdings. A firm's COVID exposure is measured by its excess stock return responses to globally newly infected cases while controlling for market return. Firms increase (decrease) cash balances when their stock returns fall (increase) with COVID severity due to precautionary motives. Firms cannot predict the evolution of the pandemic, which impacts demand and supply and the cash conversion cycle. The deteriorating business condition also increases external financing costs with non-state-owned, low-growth, small, and firms without overseas businesses facing higher financial frictions. Furthermore, firms with good corporate governance tend to pre-empt operational uncertainty by increasing cash holdings. The increased cash holdings translate to more R&D expenditure but lesser capital investment. Our results remain robust to placebo tests, using excess cash and alternative COVID exposure measures. Keywords: Firms' COVID exposure; Cash holding; Excess cash; Financing friction; Corporate governance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:116:y:2022:i:c:s0264999322002401 DOI: 10.1016/j.econmod.2022.105999 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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