The COVID-19 pandemic crisis and corporate finance Flashcards
How did the COVID-19 pandemic affect corporate finance on the supply side?
Banks provided significant financing, with AAA to A-rated firms accessing capital markets while lower-rated firms drew credit lines. There was an increase in the supply of A and BBB or lower-rated bonds, with the Fed’s corporate bond buy program helping to raise money.
What are some best practices for firms during the COVID-19 crisis according to the research?
Firms are advised to issue short-term debt rather than long-term debt to avoid potential issues with project financing in the future. Short-term debt can help mitigate risks associated with uncertain market conditions.
How did the government financing during the COVID-19 crisis contribute to the appearance of zombie firms?
Government financing led to the emergence of zombie firms, which exist solely to pay off the interest on loans without repaying the principal. This phenomenon was observed due to firms’ inability to generate sufficient revenue to cover their debt obligations.
What was the impact of the COVID-19 crisis on ESG (Environmental, Social, and Governance) stocks?
Firms with high ESG scores in the US experienced lower stock price decreases compared to others during the pandemic. Customer loyalty played a significant role, with firms having higher operating profits if they had high ESG scores. Additionally, investors with preferences for high ESG scores had portfolios with lower return volatility.
