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