NBER

Kevin Rageth

Swiss Finance Institute @ EPFL
Quartier UNIL-Dorigny, Extranef 244
CH – 1015 Lausanne
Switzerland

E-Mail: kevin.rageth@epfl.ch
Institutional Affiliation: Ecole Polytechnique Fédérale de Lausanne

NBER Working Papers and Publications

May 2020How Valuable is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis
with Rüdiger Fahlenbrach, René M. Stulz: w27106
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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