IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v144y2022i3p780-806.html
   My bibliography  Save this article

Corporate flexibility in a time of crisis

Author

Listed:
  • Barry, John W.
  • Campello, Murillo
  • Graham, John R.
  • Ma, Yueran

Abstract

We use the COVID shock to study the direct and interactive effects of several forms of corporate flexibility on short- and long-term real business plans. We find that i) workplace flexibility, namely the ability for employees to work remotely, plays a central role in determining firms’ employment plans during the health crisis; ii) investment flexibility allows firms to increase or decrease capital spending based on their business prospects in the crisis, with effects shaped by workplace flexibility; and iii) financial flexibility contributes to stronger employment and investment, in particular when fixed costs are high. While the role of workplace flexibility is new to the COVID crisis, CFOs expect lasting effects for years to come: high workplace flexibility firms foresee continuation of remote work, stronger employment recovery, and shifting away from traditional capital investment, whereas low workplace flexibility firms rely more on automation to replace labor.

Suggested Citation

  • Barry, John W. & Campello, Murillo & Graham, John R. & Ma, Yueran, 2022. "Corporate flexibility in a time of crisis," Journal of Financial Economics, Elsevier, vol. 144(3), pages 780-806.
  • Handle: RePEc:eee:jfinec:v:144:y:2022:i:3:p:780-806
    DOI: 10.1016/j.jfineco.2022.03.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X22000630
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jfineco.2022.03.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Barrero, Jose Maria & Bloom, Nick & Davis, Steven J., 2020. "Why Working From Home Will Stick," SocArXiv wfdbe, Center for Open Science.
    2. Luca Fornaro & Martin Wolf, 2020. "Covid-19 coronavirus and macroeconomic policy," Economics Working Papers 1713, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    4. Gompers, Paul A. & Kaplan, Steven N. & Mukharlyamov, Vladimir, 2022. "Private equity and Covid-19," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    5. John R. Graham, 2022. "Presidential Address: Corporate Finance and Reality," Journal of Finance, American Finance Association, vol. 77(4), pages 1975-2049, August.
    6. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    7. Dingel, Jonathan I. & Neiman, Brent, 2020. "How many jobs can be done at home?," Journal of Public Economics, Elsevier, vol. 189(C).
    8. Daron Acemoglu & Victor Chernozhukov & Iván Werning & Michael D. Whinston, 2021. "Optimal Targeted Lockdowns in a Multigroup SIR Model," American Economic Review: Insights, American Economic Association, vol. 3(4), pages 487-502, December.
    9. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
    10. Alexandre Mas & Amanda Pallais, 2017. "Valuing Alternative Work Arrangements," American Economic Review, American Economic Association, vol. 107(12), pages 3722-3759, December.
    11. Stefano Ramelli & Alexander F. Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," Swiss Finance Institute Research Paper Series 20-12, Swiss Finance Institute.
    12. Itzhak Ben-David & John R. Graham, 2013. "Managerial Miscalibration," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1547-1584.
    13. Hensvik, Lena & Le Barbanchon, Thomas & Rathelot, Roland, 2020. "Which jobs are done from home? Evidence from the American Time Use Survey?," The Warwick Economics Research Paper Series (TWERPS) 1261, University of Warwick, Department of Economics.
    14. Mark C. Anderson & Rajiv D. Banker & Surya N. Janakiraman, 2003. "Are Selling, General, and Administrative Costs “Sticky”?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 47-63, March.
    15. Ströbel, Johannes & Alekseev, Georgij & Amer, Safaa & Gopal, Manasa & Kuchler, Theresa & Schneider, JW & Wernerfelt, Nils, 2020. "The Effects of COVID-19 on U.S. Small Businesses: Evidence from Owners, Managers, and Employees," CEPR Discussion Papers 15290, C.E.P.R. Discussion Papers.
    16. Owen A. Lamont, 2000. "Investment Plans and Stock Returns," Journal of Finance, American Finance Association, vol. 55(6), pages 2719-2745, December.
    17. Nicholas Bloom & Robert S. Fletcher & Ethan Yeh, 2021. "The Impact of COVID-19 on US Firms," NBER Working Papers 28314, National Bureau of Economic Research, Inc.
    18. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(2 (Summer), pages 329-383.
    19. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    20. Daron Acemoglu & Pascual Restrepo, 2020. "Robots and Jobs: Evidence from US Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2188-2244.
    21. Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).
    22. Alexandre Mas & Amanda Pallais, 2020. "Alternative Work Arrangements," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 631-658, August.
    23. Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 611-633.
    24. Granja, João & Makridis, Christos & Yannelis, Constantine & Zwick, Eric, 2022. "Did the paycheck protection program hit the target?," Journal of Financial Economics, Elsevier, vol. 145(3), pages 725-761.
    25. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    26. Leonid Kogan & Dimitris Papanikolaou & Lawrence D. W. Schmidt & Bryan Seegmiller, 2021. "Technology, Vintage-Specific Human Capital, and Labor Displacement: Evidence from Linking Patents with Occupations," NBER Working Papers 29552, National Bureau of Economic Research, Inc.
    27. Acharya, Viral & Almeida, Heitor & Amihud, Yakov & Liu, Ping, 2021. "Efficiency or resiliency? Corporate choice between financial and operational hedging," CEPR Discussion Papers 15885, C.E.P.R. Discussion Papers.
    28. Alexander W. Bartik & Zoe B. Cullen & Edward L. Glaeser & Michael Luca & Christopher T. Stanton, 2020. "What Jobs are Being Done at Home During the Covid-19 Crisis? Evidence from Firm-Level Surveys," NBER Working Papers 27422, National Bureau of Economic Research, Inc.
    29. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    30. Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 430-471.
    31. David Baqaee & Emmanuel Farhi, 2020. "Nonlinear Production Networks with an Application to the Covid-19 Crisis," NBER Working Papers 27281, National Bureau of Economic Research, Inc.
    32. Raj Chetty & John N. Friedman & Michael Stepner & The Opportunity Insights Team, 2020. "The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data," NBER Working Papers 27431, National Bureau of Economic Research, Inc.
    33. Andrea L. Eisfeldt & Dimitris Papanikolaou, 2013. "Organization Capital and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 68(4), pages 1365-1406, August.
    34. Stefano Giglio & Matteo Maggiori & Johannes Stroebel & Stephen Utkus, 2021. "The joint dynamics of investor beliefs and trading during the COVID-19 crash," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 118(4), pages 2010316118-, January.
    35. Miklós Koren & Rita Pető, 2020. "Business disruptions from social distancing," PLOS ONE, Public Library of Science, vol. 15(9), pages 1-14, September.
    36. John Graham, 2022. "Presidential Address: Corporate Finance and Reality," NBER Working Papers 29841, National Bureau of Economic Research, Inc.
    37. Katharine G. Abraham & John C. Haltiwanger & Kristin Sandusky & James R. Spletzer, 2017. "Measuring the Gig Economy: Current Knowledge and Open Issues," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 257-298, National Bureau of Economic Research, Inc.
    38. Wagner, Alexander F. & Ramelli, Stefano, 2020. "Feverish Stock Price Reactions to COVID-19," CEPR Discussion Papers 14511, C.E.P.R. Discussion Papers.
    39. Janice C. Eberly & Jonathan Haskel & Paul Mizen, 2021. ""Potential Capital”, Working From Home, and Economic Resilience," NBER Working Papers 29431, National Bureau of Economic Research, Inc.
    40. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 622-655.
    41. Barry T. Hirsch & David A. MacPherson, 2003. "Union Membership and Coverage Database from the Current Population Survey: Note," ILR Review, Cornell University, ILR School, vol. 56(2), pages 349-354, January.
    42. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    43. Erik Brynjolfsson & John J. Horton & Adam Ozimek & Daniel Rock & Garima Sharma & Hong-Yi TuYe, 2020. "COVID-19 and Remote Work: An Early Look at US Data," NBER Working Papers 27344, National Bureau of Economic Research, Inc.
    44. Titan Alon & Matthias Doepke & Jane Olmstead-Rumsey & Michèle Tertilt, 2020. "The Impact of COVID-19 on Gender Equality," CRC TR 224 Discussion Paper Series crctr224_2020_163, University of Bonn and University of Mannheim, Germany.
    45. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    46. Gabriel Chodorow-Reich, 2014. "The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008-9 Financial Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 1-59.
    47. Chen, Zhiyao & Harford, Jarrad & Kamara, Avraham, 2019. "Operating Leverage, Profitability, and Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 369-392, February.
    48. Nicolas Crouzet & Janice C. Eberly, 2019. "Understanding Weak Capital Investment: the Role of Market Concentration and Intangibles," NBER Working Papers 25869, National Bureau of Economic Research, Inc.
    49. Augustin Landier & David Thesmar, 2020. "Earnings Expectations in the COVID Crisis," NBER Working Papers 27160, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. TOMIURA Eiichi & KUMANOMIDO Hiroshi, 2022. "Impacts of Inter-firm Relations on the Adoption of Remote Work: Evidence from a survey in Japan during the COVID-19 pandemic," Discussion papers 22053, Research Institute of Economy, Trade and Industry (RIETI).
    2. John R. Graham, 2022. "Presidential Address: Corporate Finance and Reality," Journal of Finance, American Finance Association, vol. 77(4), pages 1975-2049, August.
    3. Carla Magalhães & Arthur Araújo & Maria Isabel Andrés-Marques, 2022. "How Do Hospitality Workers Perceive Their Work Skills before and after the Lockdown Imposed by the COVID-19 Pandemic?," Social Sciences, MDPI, vol. 11(12), pages 1-14, December.
    4. Boyao Wu & Difang Huang & Muzi Chen, 2023. "Estimating contagion mechanism in global equity market with time‐zone effect," Financial Management, Financial Management Association International, vol. 52(3), pages 543-572, September.
    5. Wolfgang Breuer & Jannis Bischof & Oliver Fabel & Christian Hofmann & Jochen Hundsdoerfer & Tim Weitzel, 2023. "Business economics in a pandemic world: how a virus changed our economic life," Journal of Business Economics, Springer, vol. 93(1), pages 1-9, January.
    6. Gao, Haoyu & Wen, Huiyu & Wang, Xingjian, 2022. "Pandemic effect on corporate financial asset holdings: Precautionary or return-chasing?," Research in International Business and Finance, Elsevier, vol. 62(C).
    7. Barth, Erling & Bryson, Alex & Dale-Olsen, Harald, 2022. "Creative Disruption: Technology Innovation, Labour Demand and the Pandemic," IZA Discussion Papers 15762, Institute of Labor Economics (IZA).
    8. Gao, Haoyu & Li, Jinxuan & Wen, Huiyu, 2023. "Bank funding costs during the COVID-19 pandemic: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laeven, Luc, 2022. "Pandemics, intermediate goods, and corporate valuation," Journal of International Money and Finance, Elsevier, vol. 120(C).
    2. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    3. Marco Pagano & Josef Zechner, 2022. "COVID-19 and Corporate Finance [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Corporate Finance Studies, Oxford University Press, vol. 11(4), pages 849-879.
    4. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    5. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    6. Omrane Guedhami & April Knill & William L. Megginson & Lemma W. Senbet, 2022. "The dark side of globalization: Evidence from the impact of COVID-19 on multinational companies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(8), pages 1603-1640, October.
    7. Deniz Igan & Ali Mirzaei & Tomoe Moore, 2022. "A shot in the arm: stimulus packages and firm performance during Covid-19," BIS Working Papers 1014, Bank for International Settlements.
    8. Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).
    9. Silva, Thiago Christiano & Wilhelm, Paulo Victor Berri & Tabak, Benjamin Miranda, 2022. "The role of non-critical business and telework propensity in international stock markets during the COVID-19 pandemic," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    10. Ducret, Romain, 2021. "Investors' perception of business group membership during an economic crisis : Evidence from the COVID-19 pandemic," FSES Working Papers 524, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    11. Ferragina, Anna Maria & Iandolo, Stefano, 2022. "Reacting to the economic fallout of the COVID-19: Evidence on debt exposure and asset management of Italian firms," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 530-547.
    12. Murillo Campello & Gaurav Kankanhalli & Pradeep Muthukrishnan, 2020. "Corporate Hiring under COVID-19: Labor Market Concentration, Downskilling, and Income Inequality," NBER Working Papers 27208, National Bureau of Economic Research, Inc.
    13. Massimiliano Affinito & Raffaele Santioni, 2021. "When the panic broke out: COVID-19 and investment funds' portfolio rebalancing around the world," Temi di discussione (Economic working papers) 1342, Bank of Italy, Economic Research and International Relations Area.
    14. Neukirchen, Daniel & Engelhardt, Nils & Krause, Miguel & Posch, Peter N., 2023. "The value of (private) investor relations during the COVID-19 crisis," Journal of Banking & Finance, Elsevier, vol. 147(C).
    15. Tetyana Balyuk & Nagpurnanand R. Prabhala & Manju Puri, 2020. "Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons From the Paycheck Protection Program," NBER Working Papers 28114, National Bureau of Economic Research, Inc.
    16. Nils Engelhardt & Jens Ekkenga & Peter Posch, 2021. "ESG Ratings and Stock Performance during the COVID-19 Crisis," Sustainability, MDPI, vol. 13(13), pages 1-15, June.
    17. Liu, Ya & Qiu, Buhui & Wang, Teng, 2021. "Debt rollover risk, credit default swap spread and stock returns: Evidence from the COVID-19 crisis," Journal of Financial Stability, Elsevier, vol. 53(C).
    18. Louis-Philippe Beland & Abel Brodeur & Taylor Wright, 2020. "COVID-19, Stay-at-Home Orders and Employment: Evidence from CPS Data," Carleton Economic Papers 20-04, Carleton University, Department of Economics, revised 19 May 2020.
    19. Andrieș, Alin Marius & Ongena, Steven & Sprincean, Nicu, 2021. "The COVID-19 Pandemic and Sovereign Bond Risk," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    20. Michal Bernardelli & Zbigniew Korzeb & Pawel Niedziolka, 2021. "The banking sector as the absorber of the COVID-19 crisis’ economic consequences: perception of WSE investors," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 335-374, June.

    More about this item

    Keywords

    Corporate flexibility; Investment flexibility; Corporate planning; Corporate decision-making; COVID-19; Automation; Work from home; Remote work; Crisis; Investment; Employment;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:144:y:2022:i:3:p:780-806. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.