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Market Valuation of Cash Holdings: Role of Default Risk During COVID-19

Author

Listed:
  • Soumya Sankar Chakraborty
  • Mehul Raithatha
  • Tara Shankar Shaw

Abstract

This study utilizes the exogenous shock of the COVID-19 pandemic to test whether the market values the precautionary motive of cash holding. Our analysis considers the period 2017–2020 to capture the market value of cash holdings owing to the anticipation of potential containment policies. Using a generalized difference-in-difference methodology, we show that firms with high cash holdings have a positive market valuation due to the reduction of firms’ default risk. Additionally, using a causal mediation analysis, our study establishes the causal pathway through which cash affects firms’ market value during the COVID-19 pandemic. JEL Classifications: G01, G32, G12, E44

Suggested Citation

  • Soumya Sankar Chakraborty & Mehul Raithatha & Tara Shankar Shaw, 2025. "Market Valuation of Cash Holdings: Role of Default Risk During COVID-19," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 24(4), pages 461-485, December.
    • Handle: RePEc:sae:emffin:v:24:y:2025:i:4:p:461-485
    DOI: 10.1177/09726527251359027
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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