How Valuable Is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis

Ruediger Fahlenbrach, Kevin Rageth and Rene M. Stulz
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Kevin Rageth: Ecole Polytechnique Federal de Lausanne and Swiss Financial Institute
Rene M. Stulz: Ohio State U and European Corporate Governance Institute

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Firms with greater financial flexibility should be better able to fund a revenue shortfall resulting from the COVID-19 shock and benefit less from policy responses. We find that firms with high financial flexibility within an industry experience a stock price drop lower by 26% or 9.7 percentage points than those with low financial flexibility. This differential return persists as stock prices rebound. The firms more exposed to the COVID-19 shock benefit more from cash holdings. There is no evidence that recent payouts made the average firm’s stock price drop worse. Our results cannot be explained by a leverage effect.

JEL-codes: G01 G14 G32 G35 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (118)

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Related works:
Journal Article: How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis (2021)
Working Paper: How Valuable is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis (2020)
Working Paper: How Valuable is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-07

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