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

Viral Acharya and Sascha Steffen

No 27601, NBER Working Papers from National Bureau of Economic Research, Inc

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-codes: G01 G14 G32 G35 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban, nep-pay and nep-rmg
Note: CF
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Citations: View citations in EconPapers (216)

Published as Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," The Review of Corporate Finance Studies, vol 9(3), pages 430-471.

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Journal Article: 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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