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The value of cash around COVID-19: Insights from business activities

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  • Jung, Sumi
  • Choi, Ahrum

Abstract

The COVID-19 pandemic constituted an unanticipated disruption and uncertainty that had a considerable influence on the global economy. In response, companies have taken various actions, one of which is to increase their cash holdings. This paper aims to examine how investors value cash holdings (i.e., value of cash) during the pandemic. We use data from 2018 and 2021 in the U.S. and assess the marginal value of cash. We find a positive value of cash holdings during the COVID-19 pandemic, indicating that investors acknowledge the utility of cash for precautionary measures. The main results are more pronounced in companies with weak financial health and low agency conflicts. We also find that investors devalue the curtailed cash outflows for investment in companies with high growth potential. However, investors appreciate the cash inflows derived from fundraising in companies that require financial assistance. These results provide important implications for companies’ cash-holding policies in times of high uncertainty.

Suggested Citation

  • Jung, Sumi & Choi, Ahrum, 2024. "The value of cash around COVID-19: Insights from business activities," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001244
    DOI: 10.1016/j.najef.2024.102199
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    Keywords

    Value of cash; COVID-19; Uncertainty; Business activities; Real option theory; Agency theory;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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