Do firms gamble for resurrection from COVID-19?

Min Bai, Yuqi Zhang and Yu, Chia-Feng (Jeffrey)

Economics Letters, 2024, vol. 241, issue C

Abstract: This study investigates how firms cope with downside risk induced by COVID-19. Employing an entropy-balancing-matching and difference-in-differences analysis based on the COVID-19 outbreak in China, we find a significant increase in leverage and risk-taking for firms strongly impacted by the pandemic. The effect is concentrated on moderately financially constrained and less politically connected firms. These findings suggest that firms with fewer funding sources gamble for resurrection and shift risk to debtholders when struck by COVID-19.

Keywords: COVID-19 pandemic; Downside risk; Risk-Shifting (search for similar items in EconPapers)
JEL-codes: D81 G32 I18 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524003197

DOI: 10.1016/j.econlet.2024.111835

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