Can Cash Be a Ventilator for Firms Suffering from COVID-19? Evidence from Stock Market in Japan

Kohei Aono (aono@ba.ritsumei.ac.jp) and Keiichi Hori (khori@kwansei.ac.jp)
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Kohei Aono: College of Economics, Ritsumeikan University
Keiichi Hori: School of Economics, Kwansei Gakuin University

No 214, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper explores how cash can mitigate adverse COVID-19 shocks to firms using an event-study methodology and the financial data from firms listed on the Tokyo Stock Exchange. We find that firms with more cash, less debt, and larger scale suffered less from the pandemic during the entire event window. We also find that the pandemic reduced the value of future investment opportunities the firms might invest in. Finally, we show that the variations in stock returns reflecting firm-specific factors become relatively smaller than that induced by market returns as cash holdings increase.

Keywords: COVID-19; cash holdings; stock returns; event study; precautionary demand. (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020-05
New Economics Papers: this item is included in nep-cfn
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http://192.218.163.163/RePEc/pdf/kgdp214.pdf First version, 2020 (application/pdf)

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