The impact of leverage on investment and firm value during the COVID-19: Evidence from Chinese listed firms

Shuyu Xue, Zijing Luo () and Yuchen Liu ()
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Shuyu Xue: School of Finance, Southwestern University of Finance and Economics, Chengdu, China
Zijing Luo: School of Finance, Southwestern University of Finance and Economics, Chengdu, China
Yuchen Liu: Department of Finance, School of Economics, Xiamen University, Fujian, China

International Journal of Financial Engineering (IJFE), 2024, vol. 11, issue 03, 1-29

Abstract: This study examines the relations between leverage and investment and the relations between leverage and firm value during the COVID-19 period using data from Chinese listed companies. We find that the COVID-19 pandemic has strengthened the inhibition of leverage on corporate investment and firm value, while alleviated the constraint of leverage on corporate cash holdings. Furthermore, the pandemic-induced negative relationships are stronger for non-SOEs, firms holding less cash, multinational firms and firms in severe epidemic areas. Overall, our results are consistent with the risk-aversion theory. Higher economic uncertainty increases the firms’ risk aversion and eventually strengthens the negative relations between leverage and investment.

Keywords: COVID-19; leverage; investment; firm value; SOEs & non-SOEs (search for similar items in EconPapers)
JEL-codes: G31 G32 I10 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S2424786323410013

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