How R&D Intensive Firms React to the COVID-19 Pandemic: Evidence from a Quasi-Natural Experiment

Prior research suggests that R&D intensive firms are especially vulnerable during crisis due to their narrow specialization, high adjustment costs, increased distress risks, and higher sensitivity to financial distress. This paper exploits the difference in the research and development intensity as a quasi-natural experiment to examine the impact of the coronavirus pandemic on firm performance. Our study finds that the adverse consequences of COVID-19 on firms’ profitability have been less pronounced for R&D intensive firms. However, R&D intensive firms face more cash flow and liquidity problems, and perhaps as a result adjust their leverage more dramatically.