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(2
): 106741
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Estimating the COVID-19 cash crunch: Global evidence and policy
#MMPMIDC7194614
De Vito A
; Gómez JP
ä-/-ä 2020[Mar]; 39
(2
): 106741
PMIDC7194614
show ga
In this paper, we investigate how the COVID-19 health crisis could affect the
liquidity of listed firms across 26 countries. We stress-test three liquidity
ratios for each firm with full and partial operating flexibility in two simulated
distress scenarios corresponding to drops in sales of 50% and 75%, respectively.
In the most adverse scenario, the average firm with partial operating flexibility
would exhaust its cash holdings in about two years. At that point, its current
liabilities would increase, on average, by eight times, suggesting that the
average firm would have to resort to the debt market to prevent a liquidity
crunch. Moreover, about 1/10th of all sample firms would become illiquid within
six months. Finally, we study two different fiscal policies, tax deferrals and
bridge loans, that governments could implement to mitigate the liquidity risk.
Our analysis suggests bridge loans are more cost-effective to prevent a massive
cash crunch.