Do Firms Gamble for Resurrection from COVID-19?

Min Bai, Yuqi Zhang, Chia-Feng Yu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

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 languageEnglish
Article number111835
JournalEconomics Letters
Volume241
DOIs
Publication statusPublished - Aug 2024

Keywords

  • COVID-19 pandemic
  • Downside risk
  • Risk-Shifting

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