The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID

Viral Acharya and Sascha Steffen

The Review of Corporate Finance Studies, 2020, vol. 9, issue 3, 430-471

Abstract: Data on firm-loan-level daily credit line drawdowns in the United States expose a corporate “dash for cash” induced by the COVID-19 pandemic. In the first phase of the crisis, which was characterized by extreme precaution and heightened aggregate risk, all firms drew down bank credit lines and raised cash levels. In the second phase, which followed the adoption of stabilization policies, only the highest-rated firms switched to capital markets to raise cash. Consistent with the risk of becoming a fallen angel, the lowest-quality BBB-rated firms behaved more similarly to non-investment grade firms. The observed corporate behavior reveals the significant impact of credit risk on corporate cash holdings. (JEL G01, G14, G32, G35)Received July 13, 2020; editorial decision July 17, 2020 by Editor Andrew Ellul

Date: 2020
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Working Paper: The risk of being a fallen angel and the corporate dash for cash in the midst of COVID (2020)
Working Paper: The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID (2020)
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