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. (C) 2020 The Author(s). Published by Elsevier Inc.
Estimating the COVID-19 cash crunch: Global evidence and policy / Antonio De Vito; Juan-Pedro Gómez. - In: JOURNAL OF ACCOUNTING AND PUBLIC POLICY. - ISSN 0278-4254. - ELETTRONICO. - 39:2(2020), pp. 106741.1-106741.14. [10.1016/j.jaccpubpol.2020.106741]
Estimating the COVID-19 cash crunch: Global evidence and policy
Antonio De Vito
;
2020
Abstract
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. (C) 2020 The Author(s). Published by Elsevier Inc.File | Dimensione | Formato | |
---|---|---|---|
1-s2.0-S0278425420300144-main.pdf
accesso aperto
Tipo:
Versione (PDF) editoriale
Licenza:
Licenza per Accesso Aperto. Creative Commons Attribuzione - Non commerciale - Non opere derivate (CCBYNCND)
Dimensione
1.19 MB
Formato
Adobe PDF
|
1.19 MB | Adobe PDF | Visualizza/Apri |
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.