Cash Holdings and Corporate Investment: Evidence from COVID-19

15 Pages Posted: 20 Oct 2020

See all articles by Bernard Tawiah

Bernard Tawiah

Victoria University of Wellington

Michael O'Connor Keefe

Victoria University of Wellington

Date Written: September 16, 2020

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.

Keywords: Acquisition, Capital Expenditure, Cash Holdings, COVID-19

JEL Classification: G3

Suggested Citation

Tawiah, Bernard and O'Connor Keefe, Michael, Cash Holdings and Corporate Investment: Evidence from COVID-19 (September 16, 2020). Available at SSRN: https://ssrn.com/abstract=3712767 or http://dx.doi.org/10.2139/ssrn.3712767

Bernard Tawiah (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Michael O'Connor Keefe

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

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