INVESTIGATING THE OPTIMAL EXIT TIMING AND LEVERAGE DURING THE COVID-19 CRISIS

Mohamed Ben Abdelhamid and Makram Bellalah
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Mohamed Ben Abdelhamid: LEFMI, University of Picardie Jules Verne, Amiens, France.
Makram Bellalah: LEFMI, University of Picardie Jules Verne, Amiens, France.

Studii Financiare (Financial Studies), 2023, vol. 27, issue 1, 18-38

Abstract: This paper investigates the effectiveness of the corporate credit policies as a means of preventing market exit in the aftermath of the COVID-19 pandemic. A real options framework incorporating dynamic programming is employed to investigate the relationship between exit decisions, leverage ratio and productivity uncertainty. Our paper presents a novel approach to the exit problem in comparison to other attempts in early 2020. Taking into account the dynamics of firms, we allow for a variety of factors, such as productivity uncertainty, debt readjustment, liquidity constraints, and leverage level, to explain the optimal time for a firm to exit during the COVID-19 pandemic. Our results indicate that the corporate credit programs have a significant positive impact and suggests that a greater leverage ratio increases the likelihood of survival and delays the decision to exit.

Keywords: uncertainty; liquidity productivity; debt; real options (search for similar items in EconPapers)
JEL-codes: G01 G33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:vls:finstu:v:27:y:2023:i:1:p:18-38

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