Cash holdings and corporate investment: Evidence from COVID-19

Tawiah, Bernard; Keefe, Michael

Abstract

Firms hold cash for precautionary reasons. The COVID-19 pandemic plausibly represents an exogenous shock for which firms hold cash. We examine the impact of cash holdings on corporate investment during the COVID-19 pandemic. We find that Capital Expenditure and M&A levels decrease by 37% and 71% respectively during the COVID 19 pandemic. However, the impact of COVID-19 on investment is less for firms with accumulated cash. Firms at the
81st percentile of cash holdings maintain capital expenditure and acquisition at pre-COVID-19 levels. Overall, our evidence shows that the COVID-19 pandemic has had an adverse effect on corporate investment activities, but accumulated cash holdings reduces the impact.

• Journal Article Type: Article
• Acceptance Date: Apr 13, 2022
• Publication Date: 2024
• Deposit Date: Oct 14, 2022
• Journal: Review of Corporate Finance
• Peer Reviewed: Peer Reviewed
• Volume: 4
• Issue: 3-4
• Pages: 263-291
• DOI: https://doi.org/10.2139/ssrn.3712767
• Keywords: Acquisition, Capital Expenditure, Cash Holdings, COVID-19
• Public URL: https://uwe-repository.worktribe.com/output/10039281
• Related Public URLs: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3712767; ; https://www.nowpublishers.com/RCF