COVID-19 impact on firm investment—Evidence from Chinese publicly listed firms

• Published in: Journal of Asian economics Vol. 75; p. 101320
• Main Authors: Jiang, Jie, Hou, Jack, Wang, Cangyu, Liu, HaiYue
• Format: Journal Article
• Language: English
• Published: United States Elsevier Inc 01.08.2021
• Subjects: Cash flexibility; COVID-19; PSM-DID; COVID-19; Cash flexibility; PSM-DID
• ISSN: 1049-0078; 1873-7927; 1049-0078
• DOI: 10.1016/j.asieco.2021.101320

The COVID-19 outbreak had a significant impact on business cash flows and investment activities. This paper examined the COVID-19 impact on Chinese business investment in 3326 A-share listed quarterly financial reports, from which it was found that the negative relationship was more pronounced in the large, eastern Chinese state-owned firms. Using a propensity score matching method and difference-in-differences estimation, corporate financial flexibility was also examined, with the results indicating that high cash flexibility provided a buffer that allowed firms to better deal with adverse external shocks as the firms that had high cash flexibility were able to significantly increase their investments after the COVID-19 outbreak. Various robustness tests were conducted, all of which verified the robustness of the results. Overall, the empirical results provided evidence that the COVID-19 pandemic in China had a negative impact on Chinese listed firms, and verified the vital role of flexible financial reserves for firm survival and development during crises.