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How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
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How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
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How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
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Journal Article
How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
2021
Overview
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 that is 26%, or 9.7 percentage points, lower than those with low financial flexibility. This differential return persists as stock prices rebound. Firms more exposed to the COVID-19 shock benefit more from cash holdings. No evidence suggests that recent payouts worsened the average firm’s drop in stock price. Our results cannot be explained by a leverage effect.
