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Investigating The Optimal Exit Timing And Leverage During The Covid-19 Crisis

Author

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  • ABDELHAMID, Mohamed Ben

    (LEFMI, University of Picardie Jules Verne, Amiens, France.)

  • BELLALAH, Makram

    (LEFMI, University of Picardie Jules Verne, Amiens, France.)

Abstract

This paper investigates the effectiveness of the corporate credit policies as a means of preventing market exit in the aftermath of the COVID-19 pandemic. A real options framework incorporating dynamic programming is employed to investigate the relationship between exit decisions, leverage ratio and productivity uncertainty. Our paper presents a novel approach to the exit problem in comparison to other attempts in early 2020. Taking into account the dynamics of firms, we allow for a variety of factors, such as productivity uncertainty, debt readjustment, liquidity constraints, and leverage level, to explain the optimal time for a firm to exit during the COVID-19 pandemic. Our results indicate that the corporate credit programs have a significant positive impact and suggests that a greater leverage ratio increases the likelihood of survival and delays the decision to exit.

Suggested Citation

  • ABDELHAMID, Mohamed Ben & BELLALAH, Makram, 2023. "Investigating The Optimal Exit Timing And Leverage During The Covid-19 Crisis," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 27(1), pages 18-38, March.
    • Handle: RePEc:vls:finstu:v:27:y:2023:i:1:p:18-38
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    References listed on IDEAS

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    More about this item

    Keywords

    uncertainty; liquidity productivity; debt; real options;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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