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COVID-19 and the cost of bond debt: The role of corporate diversification

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  • Almaghrabi, Khadija S.

Abstract

We examine whether diversification is valuable in reducing the cost of debt for COVID-19-exposed firms. We find that although the pandemic has increased firms’ borrowing costs, both business and geographic diversifications reduce bond yield spreads for COVID-19-exposed firms. This highlights that the coinsurance features and enhanced investment opportunities of diversified firms are valuable during difficult times. We also find that unrelated diversification and diversification in countries with low COVID-19 uncertainty have a more substantial effect on reducing the bond spreads of COVID-19-exposed firms. These findings are essential for building a complete picture of the effect of COVID-19 on borrowing costs.

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  • Almaghrabi, Khadija S., 2022. "COVID-19 and the cost of bond debt: The role of corporate diversification," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004414
    DOI: 10.1016/j.frl.2021.102454
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    Cited by:

    1. Almaghrabi, Khadija S. & Tsalavoutas, Ioannis, 2022. "Political spending, related voluntary disclosure, and the cost of public debt," Journal of Financial Stability, Elsevier, vol. 63(C).
    2. Afrifa, Godfred Adjapong & Tingbani, Ishmael & Adesina, Oluseyi Oluseun, 2022. "Stochastic frontier modelling of working capital efficiency across Europe," Technological Forecasting and Social Change, Elsevier, vol. 184(C).

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    More about this item

    Keywords

    Covid-19; Diversification; Borrowing costs;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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