Cash Holdings and Corporate Investment: Evidence from COVID-19

Firms hold cash for precautionary reasons. The COVID-19 pandemic plausibly represents an exogenous shock for which firms hold cash. We examine the impact of cash holdings on corporate investment during the COVID-19 pandemic. We find that Capital Expenditure and M&A levels decrease by 37% and 71% respectively during the COVID-19 pandemic. However, the impact of COVID-19 on investment is less for firms with accumulated cash. Firms at the 81st percentile of cash holdings maintain capital expenditure and acquisition at pre-COVID-19 levels. Overall, our evidence shows that the COVID-19 pandemic has had an adverse effect on corporate investment activities, but accumulated cash holdings reduces the impact.