Abstract
This study investigates how firms cope with downside risk induced by COVID-19. Employing an entropy-balancing-matching and difference-in-differences analysis based on the COVID-19 outbreak in China, we find a significant increase in leverage and risk-taking for firms strongly impacted by the pandemic. The effect is concentrated on moderately financially constrained and less politically connected firms. These findings suggest that firms with fewer funding sources gamble for resurrection and shift risk to debtholders when struck by COVID-19.
Original language | English |
---|---|
Article number | 111835 |
Journal | Economics Letters |
Volume | 241 |
DOIs | |
Publication status | Published - Aug 2024 |
Keywords
- COVID-19 pandemic
- Downside risk
- Risk-Shifting