COVID-19 exposure, financial flexibility, and corporate leverage adjustment

Obaid Ur Rehman, Kai Wu*, Jia Liu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines how firm-level exposure to the COVID-19 pandemic affects the speed of leverage adjustment among 3260 US-listed firms from 2019q1 to 2022q1. Using a novel measure of COVID-19 exposure, we find that higher exposure significantly reduces the speed at which firms adjust their leverage towards target levels. This effect is more pronounced for financially constrained firms and those operating in competitive markets. We further show that COVID-19 exposure adversely impacts corporate liquidity, default risk, and financial flexibility. Our findings highlight the role of exogenous shocks in shaping corporate financing decisions.

Original languageEnglish
Article number103651
Number of pages30
JournalInternational Review of Economics and Finance
Volume96
Issue numberPart B
Early online date27 Sept 2024
DOIs
Publication statusPublished - 1 Nov 2024

Keywords

  • Capital structure
  • COVID-19
  • Financial flexibility
  • Leverage adjustment

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