Review of Corporate Finance > Vol 4 > Issue 3–4

Cash Holdings and Corporate Investment: Evidence from COVID-19

Bernard Kwame Tawiah, Bristol Business School, University of the West of England, UK, bernard.tawiah@uwe.ac.uk , Michael O’Connor Keefe, Victoria University of Wellington, School of Economics and Finance, New Zealand, michael.keefe@vuw.ac.nz
 
Suggested Citation
Bernard Kwame Tawiah and Michael O’Connor Keefe (2024), "Cash Holdings and Corporate Investment: Evidence from COVID-19", Review of Corporate Finance: Vol. 4: No. 3–4, pp 263-291. http://dx.doi.org/10.1561/114.00000055

Publication Date: 25 Sep 2024
© 2024 B. K. Tawiah and M. O’Connor Keefe
 
Subjects
Corporate finance
 
Keywords
JEL Codes: G32
Acquisitioncapital expenditurecash holdingsCOVID-19
 

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In this article:
Introduction 
Literature Review and Hypothesis Development 
Data and Variable Construction 
Testing 
Results 
Robustness Tests 
Conclusion 
References 

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.

DOI:10.1561/114.00000055