The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID

Viral V. Acharya, Sascha Steffen

NBER Working Paper No. 27601
Issued in July 2020
NBER Program(s):Corporate Finance

Data on firm-loan-level daily credit line drawdowns in the United States expose a corporate “dash for cash” induced by the COVID-19 pandemic. In the first phase of the crisis, which was characterized by extreme precaution and heightened aggregate risk, all firms drew down bank credit lines and raised cash levels. In the second phase, which followed the adoption of stabilization policies, only the highest-rated firms switched to capital markets to raise cash. Consistent with the risk of becoming a fallen angel, the lowest-quality BBB-rated firms behaved more similarly to non-investment grade firms. The observed corporate behavior reveals the significant impact of credit risk on corporate cash holdings.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27601

Published: Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," The Review of Corporate Finance Studies, vol 9(3), pages 430-471.