Speaker: David Smith
Institution: University of Virginia
Abstract: In the midst of the COVID-19 pandemic that led to a sudden slowdown in economic activity, financial capital raising by U.S. public companies surged to record levels. Using company-level data through the second quarter of 2020, we show that capital raising has been particularly strong among firms most affected by the pandemic, confirming that much of the new issuance reflects demand for capital to replace cash flows lost to the economic disruption from the pandemic. Although debt overhang, information asymmetries, or other frictions have the potential to limit the supply of such liquidity, we find no evidence that firms traditionally viewed as financially constrained have raised less capital than other firms. During the first half of 2020, the full range of public companies –from the smallest, youngest, and riskiest to the largest, oldest, and safest– have been able to raise financing at similar levels, suggesting no constraints on the supply of capital during the pandemic. While companies issue record amounts of bonds during this period, it is equity, at the margin, that finances the negative shocks to cash flow and large cash infusions into the smaller and riskier companies in the sample.
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