COVID-19 and the cost of bond debt: The role of corporate diversification

Khadija S. Almaghrabi

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: We examine whether diversification is valuable in reducing the cost of debt for COVID-19-exposed firms. We find that although the pandemic has increased firms’ borrowing costs, both business and geographic diversifications reduce bond yield spreads for COVID-19-exposed firms. This highlights that the coinsurance features and enhanced investment opportunities of diversified firms are valuable during difficult times. We also find that unrelated diversification and diversification in countries with low COVID-19 uncertainty have a more substantial effect on reducing the bond spreads of COVID-19-exposed firms. These findings are essential for building a complete picture of the effect of COVID-19 on borrowing costs.

Keywords: Covid-19; Diversification; Borrowing costs (search for similar items in EconPapers)
JEL-codes: G10 G30 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004414

DOI: 10.1016/j.frl.2021.102454

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