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Corporate resistance to pandemic: Evidence from China

  • International Institute of Finance, School of Management, University of Science and Technology of China,Hefei 230026, China

Cite this:
https://doi.org/10.52396/JUST-2021-0070
  • Received Date: 11 March 2021
  • Rev Recd Date: 27 May 2021
  • Publish Date: 30 April 2021
    Abstract

  • Abstract

    Based on the quarterly data of A-share listed firms between 2019 and 2020, we find that firms with lower leverage and higher cash holdings before perform better under the COVID-19 pandemic, suggesting that strong liquidity helps firms resist risks. In particular, cash holding affects firm performance through the channel of production. Secondly, we calculate firms' position in the global value chain based on a world input-output table and find that downstream firms perform better under the pandemic. Thirdly, to cope with future uncertainty, cash-holding willingness of firms increases significantly after the pandemic. All findings imply that firms need to improve their financial health to be more resilient toward negative shocks and policy makers need to improve the financial environment to satisfy firms' external financing need.

    Abstract

    Based on the quarterly data of A-share listed firms between 2019 and 2020, we find that firms with lower leverage and higher cash holdings before perform better under the COVID-19 pandemic, suggesting that strong liquidity helps firms resist risks. In particular, cash holding affects firm performance through the channel of production. Secondly, we calculate firms' position in the global value chain based on a world input-output table and find that downstream firms perform better under the pandemic. Thirdly, to cope with future uncertainty, cash-holding willingness of firms increases significantly after the pandemic. All findings imply that firms need to improve their financial health to be more resilient toward negative shocks and policy makers need to improve the financial environment to satisfy firms' external financing need.
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    • References(13)
  • [1]
    Zhu W, Zhang P, Li P, et al. Firm crisis, government support and policy efficiency under the epidemic shock: Evidence from two waves of questionnaire on SMEs. Management World, 2020, 36(4): 13-26.
    [2]
    Altomonte C, Di Mauro F, Ottaviano G, et al. Global value chains during the great trade collapse: A bullwhip effect? EconPapers, [2021-02-27]. https://econpapers.repec.org/paper/cepcepdps/dp1131.htm. 2012.
    [3]
    Bates T W, Kahle K M, Stulz R M. Why do U.S. firms hold so much more cash than they used to? Journal of Finance, 2009, 64(5): 1985-2021.
    [4]
    Opler T, Pinkowitz L, Stulz R, et al. The determinants and implications of corporate cash holdings. Journal of Financial Economics, 1999, 52(1): 3-46.
    [5]
    Ferreira M A, Custodio C, Raposo C. Cash holdings and business conditions. SSRN Electronic Journal, (February 2005)[2021-02-26]. https://ssrn.com/abstract=608664.
    [6]
    Zhu J, Lu Z. Monetary policies, enterprise' growth, and the change in the level of cash-holding. Management World,2009, 3: 152-158.
    [7]
    Wan L, Rao J. Uncertainty, the shocks of financial crisis and value of cash holding: Evidence from China's listed companies. Research on Economics and Management, 2013, 5: 63-71.
    [8]
    Ding W, Levine R, Lin C, et al. Corporate immunity to the COVID-19 pandemic. Journal of Financial Economics, 2021, 141(2): 802-830.
    [9]
    Ceng A, Fu Y E, Wei Z. Financial crisis shocks, financial flexibility reserves and corporate financing behavior: Evidence from China's listed companies. Journal of Financial Research, 2011, 10: 155-169.
    [10]
    Antras P, Chor D, Fally T. Measuring the upstreamness of production and trade flows. American Economic Review, 2012, 102(3): 412-416.
    [11]
    Wang G, Zheng Q. Study on the influence of COVID-19 epidemic on China' manufacturing industry from the perspective of global value. Review of Industrial Economics, 2020, 4: 44-58.
    [12]
    Antras P, Chor D. Organizing the global value chain. Econometrica, 2013, 81(6): 2127-2204.
    [13]
    Ceng A, Zhang C, Wei Z. Financial crisis shocks, financial flexibility reserves and corporate investment behavior: Eevidence from China's listed companies. Management World, 2013, 4: 107-120.
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    [1]
    Zhu W, Zhang P, Li P, et al. Firm crisis, government support and policy efficiency under the epidemic shock: Evidence from two waves of questionnaire on SMEs. Management World, 2020, 36(4): 13-26.
    [2]
    Altomonte C, Di Mauro F, Ottaviano G, et al. Global value chains during the great trade collapse: A bullwhip effect? EconPapers, [2021-02-27]. https://econpapers.repec.org/paper/cepcepdps/dp1131.htm. 2012.
    [3]
    Bates T W, Kahle K M, Stulz R M. Why do U.S. firms hold so much more cash than they used to? Journal of Finance, 2009, 64(5): 1985-2021.
    [4]
    Opler T, Pinkowitz L, Stulz R, et al. The determinants and implications of corporate cash holdings. Journal of Financial Economics, 1999, 52(1): 3-46.
    [5]
    Ferreira M A, Custodio C, Raposo C. Cash holdings and business conditions. SSRN Electronic Journal, (February 2005)[2021-02-26]. https://ssrn.com/abstract=608664.
    [6]
    Zhu J, Lu Z. Monetary policies, enterprise' growth, and the change in the level of cash-holding. Management World,2009, 3: 152-158.
    [7]
    Wan L, Rao J. Uncertainty, the shocks of financial crisis and value of cash holding: Evidence from China's listed companies. Research on Economics and Management, 2013, 5: 63-71.
    [8]
    Ding W, Levine R, Lin C, et al. Corporate immunity to the COVID-19 pandemic. Journal of Financial Economics, 2021, 141(2): 802-830.
    [9]
    Ceng A, Fu Y E, Wei Z. Financial crisis shocks, financial flexibility reserves and corporate financing behavior: Evidence from China's listed companies. Journal of Financial Research, 2011, 10: 155-169.
    [10]
    Antras P, Chor D, Fally T. Measuring the upstreamness of production and trade flows. American Economic Review, 2012, 102(3): 412-416.
    [11]
    Wang G, Zheng Q. Study on the influence of COVID-19 epidemic on China' manufacturing industry from the perspective of global value. Review of Industrial Economics, 2020, 4: 44-58.
    [12]
    Antras P, Chor D. Organizing the global value chain. Econometrica, 2013, 81(6): 2127-2204.
    [13]
    Ceng A, Zhang C, Wei Z. Financial crisis shocks, financial flexibility reserves and corporate investment behavior: Eevidence from China's listed companies. Management World, 2013, 4: 107-120.
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