Abstract

Pandemic disease outbreaks generate economic disruptions and impact on liquidity needs of firms. However, how pandemics affect liquidity management policies of firms has received relatively little attention. In this study, we examine whether U.S. firms hold more cash during disease pandemics. We find that U.S. firms increase their cash holdings in response to high disease pandemic exposure. The increase is more pronounced for firms that are small, young, or highly exposed to the uncertainty through their greater reliance on government spending. However, expected cash holdings decrease significantly for firms with male CEOs, or more able (or specialist) CEOs who possess more specific rather than general knowledge of their business to make better judgements. In particular, holding more cash in the presence of high disease uncertainty alleviates the negative impact of disease pandemics on capital investment and corporate payout targets. Our findings demonstrate that cash holdings represent a vital channel in mitigating the negative effect of disease pandemics on firm strategic outcomes.