Cash Holdings and Corporate Investment: Evidence from COVID-19

Bernard Kwame Tawiah and Michael O’Connor Keefe

Review of Corporate Finance, 2024, vol. 4, issue 3–4, 263-291

Abstract: Firms hold cash for precautionary reasons. The COVID-19 pandemic plausibly represents an exogenous shock for which firms hold cash. We examine the impact of cash holdings on corporate investment during the COVID-19 pandemic. We find that Capital Expenditure and M&A levels decrease by 37% and 71% respectively during the COVID 19 pandemic. However, the impact of COVID-19 on investment is less for firms with accumulated cash. Firms at the 81st percentile of cash holdings maintain capital expenditure and acquisition at pre-COVID-19 levels. Overall, our evidence shows that the COVID-19 pandemic has had an adverse effect on corporate investment activities, but accumulated cash holdings reduces the impact.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrcf:114.00000055

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