Viral Acharya reports on the risk of being a fallen angel and the corporate dash for cash amid COVID-19
In March 2020, as the COVID-19 pandemic roiled both financial markets and the real economy, US companies increased their cash holdings, in part by drawing down bank credit lines. Research Associate Viral Acharya and Sascha Steffen document these patterns in a new working paper (27601). They attribute the dash for cash to a concern among managers that their firm's credit rating would be downgraded on account of pandemic-related business disruption, and that it would become more expensive or even impossible to raise cash after that. Acharya summarizes these findings in the short video below.