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How Corporate Liquidity Reacts to COVID-19 Outbreak? Evidence from Listed Corporations in Saudi Arabia

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  • Faisal Alnori

Abstract

The outbreak of the COVID-19 pandemic remarkably influenced the global economy and hence corporate decisions. This study investigates corporate liquidity policy reaction to the COVID-19 pandemic by comparing corporate cash holdings levels before and after the COVID-19 crisis. Using quarterly data of listed non-financial firms in Saudi Arabia over the years 2018-2021 and employing a paired-sample univariate analysis, this study found that the COVID-19 outbreak significantly influenced corporate liquidity decisions. In particular, the results show a significant difference in the cash holdings levels between the periods before and after the COVID-19 crisis. Firms’ cash holdings are significantly higher after COVID-19 in comparison to cash holdings before the pandemic. These findings support the trade-off theory’s precautionary and transaction cost motives for holding liquid assets. The outcomes of this study provide important implications for policymakers, corporate managers, and lenders.

Suggested Citation

  • Faisal Alnori, 2024. "How Corporate Liquidity Reacts to COVID-19 Outbreak? Evidence from Listed Corporations in Saudi Arabia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 16(5), pages 1-40, May.
    • Handle: RePEc:ibn:ijefaa:v:16:y:2024:i:5:p:40
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    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Faisal Alnori & Moid U. Ahmad, 2022. "Herd Mentality Amongst Equity Investors During COVID-19: Evidences from Saudi Arabia," International Journal of Economics and Financial Issues, Econjournals, vol. 12(4), pages 40-46, July.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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