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Fahlenbrach, Rüdiger; Rageth, Kevin; Stulz, René M
Review of financial studies/The Review of financial studies, 11/2021, Volume: 34, Issue: 11Journal Article
Abstract 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.
