Estimating the COVID-19 cash crunch: Global evidence and policy
By Antonio De Vito, J. Gómez. Journal of Accounting and Public Policy, 2020
305 citations recorded by the source corpus.
In this paper, we investigate how the COVID-19 health crisis could affect the liquidity of listed firms across 26 countries. We stress-test three liquidity ratios for each firm with full and partial operating flexibility in two simulated distress scenarios corresponding to drops in sales of 50% and 75%, respectively. In the most adverse scenario, the average firm with partial operating flexibility would exhaust its cash holdings in about two years. At that point, its current liabilities would increase, on average, by eight times, suggesting that the average firm would have to resort to the debt market to prevent a liquidity crunch. Moreover, about 1/10th of all sample firms would become illiquid within six months. Finally, we study two different fiscal policies, tax deferrals and bridge loans, that governments could implement to mitigate the liquidity risk. Our analysis suggests bridge loans are more cost-effective to prevent a massive cash crunch.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/222f8c8755d5a0898c0123550600cc2faa1f693c
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Citations in the corpus
- Consumer Spending Responses to the COVID-19 Pandemic: An Assessment of Great Britain (2020, background): “De Vito and Gomez (2020) investigate via a series of scenarios, the likely impact of COVID-19 on the liquidity of listed firms across 26 countries.”
- How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis (2020, unknown): “De Vito and Gómez (2020) use an international sample and simulations to analyze how much time firms with limited operating flexibility would have before they exhaust cash reserves. Using a large international sample, Ding et al. (2020) examine the connection between stronger pre-2020 finances, less ”