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Financial distress costs and the pandemic
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The macroeconomic shock in March 2020 and the Covid-19 pandemic have increased the risk levels of companies around the world. The amount of leverage held is no longer associated with a positive tax-shield benefit. Therefore, this paper analyzes the effect of holding higher amounts of leverage with respect tofinancial distress costs for companies. Through an OLS panel data regression, the effect of higher leverage on the financial and operational performance of firms is estimated. Given the findings, the increase in leverage negatively influences sales growth and the operating performance of firms.
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Corporate finance Financial distress cost Pandemic Leverage Debt