Government responses, business continuity, and management sentiment: Impact on debt financing during COVID-19

We examine how the government responses, amenability to remote working, and managerial outlook associated with COVID-19 influence debt financing by firms around the world. We find that the propensity and the amount of loan financing by firms is higher with greater stringency of lockdowns. Firms’ debt raising during the pandemic is also influenced by the work-from-home amenability of industries. We find that firms with greater reliance on customer interaction have a higher propensity for debt financing at the onset of the pandemic, indicative of their heightened need for liquidity. The propensity for bond financing is higher for firms that have a higher degree of exposure to the pandemic. In contrast, firms that hold a positive sentiment about the impact of the pandemic are less likely to raise debt financing. Our key results are largely robust to the effects of quantitative easing by the major central banks. The study deepens the understanding of the heterogeneous impact of the pandemic on debt financing on account of various country-, industry-, and firm-level factors.