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COVID-19 pandemic and debt financing by firms: Unravelling the channels

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  • Gopalakrishnan, Balagopal
  • Jacob, Joshy
  • Mohapatra, Sanket

Abstract

The COVID-19-induced disruptions and the consequent government responses stretched the financial resources of firms. Recent studies document an increase in debt financing by firms during the pandemic. Using firm-level data from 61 countries, we deepen the understanding of the impact of the pandemic by examining the variation in loan and bond financing attributable to COVID-19-specific factors. Indicative of heightened precautionary needs, firms with higher pandemic exposure and those located in countries with stringent lockdowns have a higher propensity to raise debt. Furthermore, firms in industries less amenable to remote working also have a higher propensity to raise debt, but face higher financing costs compared to their peers. Reflective of opportunistic investment motives, firms that hold a relatively positive outlook have a greater likelihood of raising loan financing. The findings draw attention to the role of real-side factors and managerial motives that drive debt financing during a distress episode.

Suggested Citation

  • Gopalakrishnan, Balagopal & Jacob, Joshy & Mohapatra, Sanket, 2022. "COVID-19 pandemic and debt financing by firms: Unravelling the channels," Economic Modelling, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001754
    DOI: 10.1016/j.econmod.2022.105929
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    More about this item

    Keywords

    COVID-19; Pandemic; Bond financing; Syndicated loans; Work-from-home;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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