How Valuable is Financial Flexibility When Revenue Stops? Evidence from the Covid-19 Crisis

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 experience a stock price drop lower by 26% or 9.7 percentage points than those with low financial flexibility accounting for a firm's industry. This differential return persists as stock prices rebound. Similar results hold for CDS spreads. The stock price of a firm with an average payout over assets ratio would have dropped 2 percentage points less with no payouts for the last three years

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Year of publication:	2020
Authors:	Fahlenbrach, Rüdiger
Other Persons:	Rageth, Kevin (contributor) ; Stulz, René M. (contributor)
Publisher:	[2020]: [S.l.] : SSRN
Subject:	Coronavirus \| Finanzkrise \| Financial crisis