More financial flexibility

The CARES Act limits repurchases by corporations. In the public debate about the act, there was much discussion that corporations would have been more resilient had they received lower payouts in previous years.

Surprisingly, there is no statistically significant relation between past payouts and stock returns during the collapse period whether or not we control for our financial flexibility proxies. We provide a straightforward explanation for this surprising result.

If firms had not made payouts in or and had instead increased their cash holdings or decreased long-term debt, the impact for the average firm would have been small. To conclude, we examine the value of financial flexibility in the unique situation of a sudden and unexpected revenue shortfall brought about by demand and supply shocks related to the increase in the need for social distancing associated with the COVID shock.

This benefit of financial flexibility is economically important. Though financial economists have argued that financial flexibility might be used to hurt shareholders Jensen , investor activists have campaigned to force firms to decrease cash holdings and increase leverage, and the private equity industry has made the reduction of financial flexibility intrinsic to its business model, the results of this paper should remind us that financial flexibility is also a key risk management tool.

However, this tool does not come for free. Future research should help us understand better how to value the downside of financial flexibility to help shareholders and managers trade off the benefits and costs of financial flexibility more effectively.

The complete paper is available for download here. Harvard Law School Forum on Corporate Governance. Home About Archive Categories Contributors Hiring Blogroll. How Valuable is Financial Flexibility When Revenue Stops?

Evidence from the COVID Crisis Posted by Rudiger Fahlenbrach EPFL , Kevin Rageth EPFL , and Rene M. Stulz The Ohio State University , on. Comments Off on How Valuable is Financial Flexibility When Revenue Stops?

Evidence from the COVID Crisis Print E-Mail Tweet. Cash flows , COVID , Firm performance , Leverage , Long-Term value , Repurchases , Risk management More from: Kevin Rageth , Rüdiger Fahlenbrach. Supported By:. William Ackman Peter Atkins David Bell Kerry E. This resulted in several firms closing down temporarily or permanently.

International, regional and local travel restrictions significantly affected the tourism and hospitality industry Yang et al. Previously, air travel was attributed to amplifying the spread of influenza Browne et al.

UNWTO suggests that the biggest crisis in the history of the tourism industry will continue in In India, the tourism and hospitality industry was facing the highest unemployment rate Kaushal and Srivastava, with about 4. Furthermore, the Government provided free loans to the Micro, Small and Medium Enterprises MSMEs to revive the economy that included the tourism sector India Brand Equity Foundation, While initiatives are being implemented, Kaushal and Srivastava argue for more empirical investigations of the pandemic's impact on the industry; thus, this study is an effort towards the same.

Managers address future shocks in cash or investment positively by intentionally maintaining a low level of leverage and a high level of cash reserves which are above the optimal level Denis and McKeon, This form of financial flexibility remains an essential element in corporate financing decisions.

Additionally, firms face the challenge of imperfect capital markets accompanied by the increasing cost of external financing, thus making financial flexibility even more crucial.

Thus, financial flexibility can be pursued by managing their capital structure, formulating cash management or payment policies, and considering the intertemporal links between financing and investment decisions Almeida et al.

Economic policy uncertainty EPU is considered as an external risk that plays an important role in financing and investment decisions Liu et al. Regulatory authorities frequently alter the policy environment, which in turn limits the firm's ability to create stable and consistent prejudgment of their financial conditions and external environment.

Investment and financial decisions converge and capital allocation efficiency deteriorates due to the instability of the macroeconomic environment Baum et al. Baum et al. High EPU is also associated with adverse impacts on firm profitability through pricing, repricing, investment, divestment and cash flow decisions Ozili, Türkcan and Erkuş-Öztürk confirm that tourism firms will exhibit survival rates during the crisis, with hotels and travel agencies being more sensitive to macroeconomic and political shocks.

It has also been observed that firms with high financial flexibility suffer low impact Bancel and Mittoo, , while high pre-levels of debt hurt firm value during the financial crisis Meier et al.

While literature has documented the performance of the tourism sector during a prior crisis, the impact of COVIDinduced EPU has not yet been explored. Thus, using a sample of firm quarterly observations from to , this study investigates the impact of EPU on the financial flexibility of tourism firms in India before and during the pandemic.

The results of the study suggest that COVIDinduced EPU results in lower debt flexibility for tourism firms. This study also confirms that under the conditions of high EPU during the pandemic, firms have higher cash flexibility.

Cash is used as savings by tourism companies to mitigate the adverse impact of adverse shocks and higher EPU. This study makes several contributions to the literature. Industry actors and decision-makers face the unprecedented challenge of surviving a crisis, and this research offers insight into the determinants of financial flexibility that would support coping with the same.

Liu et al. Thus, this study contributes to the EPU literature and extends the debate of its influence on a firm's financial flexibility. This study included quarterly data to investigate the objectives that are a vital contribution to the pandemic period highlighted in literature Poretti and Heo, A prior study by Altaf suggested that EPU hurts the investment decisions of Indian hospitality firms without considering the impact of the pandemic.

As financial flexibility is a key element for firms to make investment decisions, this study further contributes to the EPU literature by exploring its impact on financial flexibility for India's tourism firms.

The study on financial flexibility by Chang and Wu cited limited data for the pandemic and did not consider the dummy variable of financial flexibility.

This study overcomes the gap in literature by including the impact of the pandemic for a longer period Kaczmarek et al. The study also examines the impact of external and firm-specific characteristics on financial flexibility before and during the pandemic, addressing the suggestion of extending more studies to investigate the pandemic effect Kaushal and Srivastava, The remainder of this study is organised as follows.

Section 2 presents a literature review and the hypothesis development of the study. Section 3 elaborates on the methodology that includes sampling, the research model and variable definition.

Section 4 discusses the results of the empirical model. Finally, Section 5 concludes with a discussion of implications and limitations.

Prior studies on capital structure have noted that companies, in general, have less leverage than those predicted by dominant theories Yousefi and Yung, This phenomenon has been attributed to a company's preference to maintain financial flexibility in terms of unused debt capacity de Jong et al.

Firms like to be financially flexible as it allows them to avoid financial distress during periods of negative shocks and can fund investments when an opportunity arises. Corporate financial flexibility has two major components: cash and debt flexibility.

A firm is known to have cash flexibility when it has excess cash holdings Arslan-Ayaydin et al. Similarly, a firm will have debt flexibility if it has a residual debt capacity Yang et al. Recent research by Hao et al. As per the financial flexibility hypothesis, firms deliberately maintain a zero-debt policy to manage the debt capacity that can be used for future investment opportunities de Jong et al.

Similarly, firms holding more cash are associated with maintaining corporate flexibility to take advantage of profitable investment opportunities. Two different corporate policies are adopted for financial flexibility: capital structure and cash.

Under capital structure policy, researchers use cash flow sensitivity to external sources of finance to measure financial flexibility. A firm resorts to raising more external finance when its internal sources are exhausted Almeida et al. Thus, maintaining low leverage leads to higher financial flexibility and raises finance whenever needed Harris, Cash policy involves maintaining high cash balances to avoid under-underinvestment Marchica and Mura, From a researcher's perspective, leverage and cash are simultaneously used to define financial flexibility.

Prior studies argue that firms maintain low leverage combined with high cash holdings to counter investments and income shortages Arslan-Ayaydin et al. From a theoretical perspective, a rise in uncertainty increases information asymmetry, which further aggravates the opacity of borrowers Mishkin, This confuses lenders in distinguishing between bad and good credit risks affecting the decision to lend, resulting in a decline in investment and, consequently, a contraction in economic activity.

The financial system can be destabilised by either a shortfall in cash flow due to a decline in income, management or human error Minsky, Thus, financial stability is more likely to be affected by uncertainty.

EPU affects organisations on a macro-level and has the possibility of exerting a distinct impact on financial flexibility compared to firm-level sources of uncertainty Duong et al. This study adopts the EPU index developed by Baker et al.

Li and Qiu highlight a dearth of literature on the importance of EPU in capital structure decisions. EPU is an exogenous shock to firms and is considered a non-diversifiable risk. Prior studies have reported that firms hold more cash during periods of high EPU Duong et al. Bordo et al. This means that EPU accompanied by periods of recession and recovery curtailed bank loan growth and overall economic growth.

Thus, as a precautionary motive, firms tend to reserve more cash when accessibility to the external financial markets is constrained in the period of EPU Bates et al. Economic policy is seen as a means to regulate a country's economic performance Tran, EPU places firms in two kinds of challenges.

The first challenge emerges from the information asymmetry that occurs between firms and their creditors during periods of high economic uncertainty Zhang et al. This leads to creditors increasing the cost of debt to compensate for the information disadvantage Jensen and Meckling, ; Myers and Majluf, The second challenge arises when firms tend to postpone their investment decisions during periods of EPU, leading to more volatile cash flows Bloom et al.

Literature has reported that elevated levels of EPU are associated with shortened debt maturity Datta et al. Zhao and Su report a U-shaped relationship between EPU and corporate financialisation from to It was found that when EPU is in an appropriate range, the firm is less likely to increase financial asset investment.

Business groups with low internal controls in China have been reported to have centralised borrowing patterns under EPU. Almustafa et al. However, this study did not investigate the impact of the pandemic. A study on listed Indian firms from to indicated a positive impact of EPU on leverage Bajaj et al.

The findings indicate a gap in the literature in terms of financial flexibility that has been measured either through a cash or debt perspective, but not both.

The studies have not investigated the effect of COVID induced EPU on financial flexibility, especially in an emerging market like India and specifically for the tourism sector that made a significant contribution before the pandemic.

Thus, based on the above arguments, this study states the following hypotheses: H1. A low debt flexibility is associated with COVIDinduced EPU.

To empirically examine the determinants of financial flexibility before and during the COVID period, this study uses tourism firms listed on the National Stock Exchange and Bombay Stock Exchange in India. There were a total of 85 listed firms in the study period.

On 11th March , the World Health Organization declared COVID a pandemic; thereafter, countries worldwide took more stringent measures for controlling its spread. Therefore, this study used Q1 to Q1 as the pre-COVID period and Q2 to Q3 as the COVID period WHO, Companies that had missing data over the period were eliminated from the study; thus, the final sample included firm-quarterly observations for 39 companies.

To limit the effect of outliers in the accounting variables, the dataset was winsorised at the 1st and 99th percentiles. To explore the determinants of the financial flexibility of tourism firms before and during the COVID pandemic, we investigated the following empirical equations using probit, logit and ordinary least squares OLS regression models.

Financial flexibility Debt FF1, Cash FF1 measured as binary variables 0,1 is estimated using the probit and logit, consistent with prior studies Hammer et al. Financial flexibility is the dependent variable proxied by debt flexibility Debt FF1, Debt FF2 and cash flexibility Cash FF1, Cash FF2.

EPU is the explanatory variable, and the control variables include firm size FirmSize , market-to-book value ratio MTB , debt repayable after one year to total debt Maturity , fixed assets to total assets Tangibility , depreciation to total assets NDTS , earnings before extraordinary items divided by sales E.

Sales , networking capital divided by total assets NWC. TA , retained earnings divided by total assets RE. TE and the logarithm of one plus firm age FirmAge. The subscripts I refer to firm and t refer to quarter, respectively. The variable definitions are also provided in Appendix 1 [1].

As a robustness check, the study uses difference-in-difference DID estimation to test the before and during COVID effect of EPU on financial flexibility before and during COVID Further, DID estimation is used when there are two groups whose characteristics are observed over two different periods.

This estimation helps overcome unobserved heterogeneity that may be caused by firm-specific characteristics. The DID estimation compares the mean difference between pre-COVIDEPU and during-COVIDEPU performances, thus improving the performance of testing the hypothesis.

As DID aggregates data into two periods, it solves the serial correlation issue related to the time-series dimension of the data Roy and K, The treatment variable splits firms into two groups: high EPU treatment group and low EPU control group.

A value of 1 is assigned to firms with EPU greater than the median high EPU and 0 otherwise low EPU , consistent with prior studies Shams et al. The post refers to a dummy variable for the point of an epidemic, whereby 1 refers to the period affected by COVID and 0 otherwise.

To determine whether there is a causal relationship between EPU and financial flexibility, the significance of the interaction between the COVID period and the treatment variable would have to be observed. X refers to all the control variables identified in Appendix 1 [1].

Dependent variable Financial flexibility. The dependent variable of this study is financial flexibility, which is measured both in terms of spare debt capacity and cash holdings. This study adopts Marchica and Mura's debt flexibility measurement.

We use the following specification to derive the predicted leverage. The definition of variables is included in Appendix 1 [1]. The equation includes lagged dependent and independent variables to control for potential endogeneity. The negative deviation between predicted and actual leverage is termed an unused debt capacity.

Thus, a firm is classified as having debt flexibility if it has three consecutive years of unused debt capacity Gregory, ; Marchica and Mura, Debt flexibility is a dummy variable with a value of 1 if it has three consecutive years of unused debt capacity and zeroes otherwise.

Thus, Debt FF1 is a dichotomous variable. Prior studies Almustafa et al. For a firm to be termed a cash-flexible firm, its cash needs to be more than the industry median Khan et al.

Thus, cash flexibility Cash FF1 is denoted as 1 if it is greater than the median and 0 otherwise. Additionally, cash flexibility Cash FF2 is measured as the natural logarithm of one plus cash and cash equivalents Deshmukh et al.

Independent variables. If you have contributed to your savings and retirement accounts, and you still have leftover money you would like to see grow, you are also able to open up a taxable brokerage account.

This can be done through low-cost investment brokerage companies such as Vanguard, T. Rowe Price, or Charles Schwab. With these accounts you are able to select stocks and bonds and other investments to see your money grow. I am a huge fan of low-cost index funds and bond index funds.

I basically set my allocation to a few index funds, including a total market index fund, and a total market bond fund with a specific percentage allocated to each and ride the rollercoaster.

If there are particular company stocks that you are super interested in, these accounts can be a good vehicle for those investments. Many people are interested in further diversifying their portfolio through real estate and other investments. Real estate can be a lucrative investment, because with the money you make on rental properties, you can use these funds to pay your monthly expenses, leaving you more money for savings and retirement, or taxable investments.

You can also choose to invest in real estate through something called REITs which is a portfolio of real estate investments without the requirement of maintaining the physical property. The downside to having physical rental property is you will need to maintain tenants as well as the property you purchase, and go through the process of closing on the property, closing costs, etc.

There are also specific rules with lending and rental properties, so if this is something you are interested in, do your research and speak with an experienced realtor or financial advisor.

For more information, check out this resource! Commodities are another investment class. Commodities can be physical property such as precious metals, food, or wholesale products. I tend to think of cryptocurrency as a member of this group, since it is something either purchased or mined, and this is definitely something to research to see if it is the right investment for you, as Bitcoin, a type of cryptocurrency, has skyrocketed over the last several months.

For more information on cryptocurrency, take a look at this. Ultimately, investment in the real estate and commodity domain should be explored after the other four ways for boosting financial flexibility…but with any investment, there is always a certain amount of risk involved so you should do your research, talk with a financial advisor, and evaluate what level of risk you are willing to take with your investments.

Diversification is key. Just like you should diversify your income stream, you should also diversify your investment portfolio! Also, this blog does contain affiliate links which directly benefits Shaping Development.

At this stage, you have two choices:. Most loans have a year amortization schedule a fancy way of saying how your interest and principal are applied from your payments each month—there are other parts of this, but as the borrower this is what you need to know …so at the longest if you continue to pay off the minimum payment, in years you will be finished paying off that debt.

The tricky thing with this plan is that credit card debt may never be paid off because over time interest rates can change, and if you continue to spend, it will continue to add to the balance this is why I recommend to lock them them away and give someone trusted like your partner or parent the password.

If you are not satisfied with continuing the rate you are going, you are going to need to find a way to increase your income.

This is something that in a pandemic is extremely hard to do, but pandemics aside, if these were typical times, the way to do this is two-fold: a negotiate a raise, or b diversify your income stream. Regardless, pandemic or no pandemic, you can still work towards diversifying your income stream.

If you have been with your company for a long period of time without a significant increase in pay, and your performance has been good, you should attempt to negotiate a raise with your organization. Here are some tips for doing this. Again, a pandemic may not be the best time to do this, but if your company has been relatively pandemic-proof, you may be able to do this successfully.

If you are not able to negotiate a raise with your job at this time, it is time to seriously consider diversifying your income stream. What does this mean? Well…two of the things in life that are the most valuable are money and time. As we have seen especially this past year, your job could close tomorrow and you would be out of work completely, but with a diversified income stream it can take some of that stress off.

Have your kids outgrown their toys? Do you have things around the house that you never use? Do you have clothes that are in relatively good condition that you can sell?

With those sales each month, you can chip away more at the debt balances. This is one of the ways I try to reduce my spending each month and take advantage of extra cash back.

Use their browser extensions or apps to make it easy…anytime you need to purchase something the browser extension will alert you to a cash back deal, or purchase items through clicking through their apps so you maximize your cash back reward.

Ibotta : upload your receipts and it sends you a check each month based off of the cash back deals for that month. There are also coupon codes to save you money! Rakuten : sends a percentage of cash back on things you need to buy each month. With those checks received each month, put them directly towards your debt payoff plan.

Research strategies to start a business on a limited to zero budget and get creative! Explore that passion and start making money doing it! So, once you pay down your debt, then what? Once the debt is gone, you have now also built systems for saving!

Now on to our blog…. This was a mixture of student loan and credit card debt. In staring at this massive task before me, I took the first step forward. I made a budget. At this point, it seems cliché with many financial gurus stating this as the first step, but I am going to tell you.

You will not be able to efficiently track your spending unless you actively make a budget that encompasses your financial goals. There are lots of apps out there that can help you with this, but I am a fan of a good old excel spreadsheet.

Each column represents a month and you should plan out months. Do a top row for monthly income, and then in the first column list out all of your monthly expenses. Go into your bank accounts and credit card statements to get your spending for the last few months to estimate your spending for the upcoming months.

Depending on your needs and goals, there are several different ways you can build flexibility into your budget. 3 Options for Financial Flexibility. Establish Being financially flexible generally refers to a business's ability to quickly access funds to respond to unanticipated or emergent situations These firms have financial flexibility, so that they can more easily fund a cash flow shortfall, such as the one created by the COVID shock

More financial flexibility - Financial flexibility isn't about having cash to pay for everything. Very few large organizations are totally debt-free (nor should they be) Depending on your needs and goals, there are several different ways you can build flexibility into your budget. 3 Options for Financial Flexibility. Establish Being financially flexible generally refers to a business's ability to quickly access funds to respond to unanticipated or emergent situations These firms have financial flexibility, so that they can more easily fund a cash flow shortfall, such as the one created by the COVID shock

So when it comes to how strict you should be with your money, the answer is: It depends on your goals. Not everyone needs to be as uncompromising with their saving as popular media — influencers, billionaires, financial websites — insists they should be.

It all depends on your goals and how much time you have to reach them. If you're 25 and want a modest retirement at 65, you'll be able to get away with saving less each month compared to someone who's 35 and wants to retire early or travel the world.

If that's truly your priority then you will have to save more aggressively compared to people who gave themselves a longer runway because they want to retire at 60 or 65," says Russo.

Not understanding what you truly want from your life could lead to undersaving or oversaving — aka not having enough money or having too much money. But even having too much money won't necessarily mean you're more satisfied with life if you missed important occasions and decided to say no to cherished events to save or earn extra money.

There needs to be a balance between having money, saving money and spending money. As humans, we want to have experiences with our money, she explains.

So we need a balance between earning, saving and enjoying how we spend our income. But some people tend to put too much weight on one aspect over the others. At the height of the Covid pandemic , many people began limiting how they lived because of the financial uncertainty. Some people were afraid their assets would diminish and others were worried about getting laid off and not having any income to support themselves and their families.

Others realized that it was time to make some serious changes in their money management habits. When it comes to figuring out how to strike that balance between spending money now and saving it for the future, you need to make a plan for how you want to use your money — aka, a budget.

With a budget, you'll know how much you need for your expenses, how much you can afford to save and how much you have for other goals, like taking a trip or buying a house. With a budget, you should factor in things you really care about — like traveling, dining out and celebrating birthdays.

There are many platforms out there that can help you get started with a hassle-free budget, but the Mint app lets you connect your bank accounts, investment accounts, bills and credit cards so you can track everything in one convenient place. It will analyze your spending to help you create a visual breakdown of where your money goes.

Plus, it can help you keep an eye on your net worth. Honesty is the most important policy when it comes to budgeting. Overspending in a certain category can certainly be stressful. But if you notice a consistent pattern of spending more than you've allowed yourself for the same expenses, it could be a sign that you need to budget more to cover those costs.

Practicing conscious spending can also help you create a financial plan that strikes a balance between living your life now and saving for the future.

Spending consciously means that you're purchasing the products or participating in experiences you really love while cutting out the costs for things you aren't actually interested in. By cutting these expenses, you're freeing up cash that you can redirect toward your savings or other activities you enjoy.

So maybe you love going to concerts but don't really watch TV; you might create a plan that allows you to stop paying for your streaming services so you can use that money to buy concert tickets and boost your retirement contributions. Setting yourself up to have a financially secure future can be stressful — especially when you feel the pressure of having to spend money every time something comes up.

But managing your money with financial flexibility in mind can take away some of that stress. By gaining clarity on what's important to you, you can create a plan for how you'll spend for it while still saving for the future.

Skip Navigation. Credit Cards. Follow Select. The COVIDinduced EPU demonstrates varied impacts on debt and cash flexibility. Debt FF2 and Cash FF2 are continuous variables; thus, OLS estimation was used. To identify the appropriate estimator for dealing with heterogeneity in the panel data, the Breusch—Langer Multiplier test was applied to choose between random effects and pooled OLS.

The results did not reject the null hypothesis, thus leading to the adoption of the OLS estimator. Appendix 4 [1] presents the pooled OLS results for the determinants of debt and cash flexibility before and during the COVID pandemic.

The Table shows the results of Equation 1 across the periods. All the results Columns 1, 2, 3, and 4 demonstrate a high R2, suggesting that the variations in financial flexibility are well explained with the independent and control variables.

Columns 1 and 2 reflect the results of Equation 1 of the impact of EPU on debt flexibility Debt FF2 before and during the COVID pandemic, respectively. EPU was statistically significant for Debt FF2 before and during the pandemic. Furthermore, during the COVID pandemic, EPU indicates a negative and significant relationship with debt flexibility.

This is consistent with H1. A high EPU dampens the external financing capacity of firms and thus is more constrained during the pandemic. This is consistent with the findings of US public firms that reported policy uncertainty to be associated with more stringent debt terms Tran, Before and during the COVID pandemic, the firm characteristics MTB, maturity and tangibility, were found to be significant determinants of leverage.

Firm Size was not significant before the pandemic, but it was positive and statistically significant during it. This indicates that larger tourism firms tend to embrace financial flexibility during the pandemic more easily than in non-pandemic periods.

These findings are inconsistent with the results of BRIC countries who reported a negative relationship between financial flexibility and firm size Gregory, Columns 3 and 4 show the results of Equation 1 of the impact of EPU on cash flexibility Cash FF2 before and during the COVID pandemic, respectively.

In both periods, cash flexibility is insignificantly associated with EPU. Thus, there is no support for H2. These findings are inconsistent with prior studies that have reported a positive and significant association between EPU and cash holdings Li, Larger firms had more cash flexibility than smaller firms before the COVID pandemic.

Only high tangibility was positively and significantly associated with cash holdings during the pandemic. To check the sensitivity of the results estimated in Table 1 , this study conducts a DID estimation.

Bias in the DID approach is eliminated by performing a series of robustness tests. DID estimation must fulfil the fundamental principle of the parallel trend hypothesis. According to the parallel trend hypothesis, treatment and control groups should have the same effects or tendencies.

This assumption was tested in STATA using the dqd procedure Mora and Reggio, by measuring the dependent variables across the treatment and control groups.

The null hypothesis of this result states that parallel paths cannot be rejected, thus supporting the validity of parallel paths.

Therefore, the test results suggest that the high- and low-EPU groups have common pre-treatment dynamics. The Debt FF1, Debt FF2, Cash FF1 and Cash FF2 parallel test p -values are not significant for any of the models 0. Appendix 5 [1] presents the DID effect of EPU on the financial flexibility variables.

This finding is consistent with H1. This finding is consistent with H2. This study investigated the impact of economic policy uncertainty on the financial flexibility of India's tourism sector before and during the COVID pandemic.

To the best of the author's knowledge, such a study is investigated for the first time in comparison to the literature. Using quarterly data from to , this study reports the association of EPU with cash and debt flexibility.

The findings suggest that EPU has an inverse relationship with debt flexibility during the COVID period. This finding indicates that increased EPU is associated with lower debt flexibility.

Cash flexibility was found to be high during periods of increased EPU. The DID estimation results confirm the robustness of the initial estimation. The outcome of this study has important implications for researchers, practitioners and investors.

Researchers can explore additional determinants of companies' financial flexibility, such as EPU. This study contributes to the literature by providing evidence that high EPU is associated with low debt and high cash flexibility.

Additionally, the results lend support to the precautionary motive theory that propagates high cash flexibility during the COVID pandemic.

Practitioners must consider the role of EPU when making decisions on maintaining financial flexibility in terms of debt and cash. While financial flexibility supports sustaining business operations by seizing prospective investment projects, during periods of crisis, this flexibility is reported to act differently.

Investors seek to protect their investments and achieve a good rate of return. This is possible for firms that maintain strong financial flexibility. Thus, from the perspective of research evidence, investors can choose to avoid investing in tourism firms when EPU is high.

This study suffers from certain limitations and, thus, is accompanied by future recommendations. The study was conducted for a single emerging country and a specific industry. Future studies can be extended to other emerging countries and the non-financial sector as a whole.

The results are reported over a quarterly period horizon, and it would be useful to cover yearly periods in the future. Probit and logit regression results of EPU impact on debt Debt FF1 and cash Cash FF1 flexibility before and during COVID Refer Appendix 1 for variable definition.

Almeida , H. and Weisbach , M. Almustafa , H. and Kijkasiwat , P. Altaf , N. Arslan-Ayaydin , Ö. and Ozkan , A. Bajaj , Y. and Singh , S. Baker , S. and Davis , S. Bancel , F. and Mittoo , U. Bates , T. and Stulz , R. Firms hold so much more cash than they used to? Baum , C. and Liu , B. Bloom , N.

and Van Reenen , J. Bordo , M. and Koch , C. Browne , A. and Nguyen-Van-Tam , J. Chang , B. and Wu , K. Dalwai , T. and Sewpersadh , N. and Salehi , M. ahead-of-print No. and Hussainey , K. Datta , S. and Iskandar-Datta , M.

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Minsky , H. Mishkin , F. Mora , V. and Reggio , I. Myers , S. and Majluf , N. Nicola , M. and Agha , R. Ozili , P. Phan , H. and Hegde , S. Poretti , C. and Heo , C. Roy , I. Saraswathy , M. html accessed 28 May. Scafarto , V. and della Corte , G. Shams , S.

and Velayutham , E. Tran , Q. Trinh , N. and Nghiem , S. Türkcan , K. and Erkuş-Öztürk , H. Velte , P. Waisman , M. and Zhu , Y. Yang , Y. and Chen , X. and Qi , C. Yousefi , H. and Yung , K. Zhang , G.

and Huang , H. Zhao , Y. and Su , K. The author is grateful to Prof. Hoai Nguyen Editor and the anonymous reviewers for their helpful comments and feedback. The author is also grateful for the financial support provided by Muscat College to professionally proofread this research article.

Declaration of interest: The author reports there are no competing interests to declare. docx 33 KB. Report bugs here. Please share your general feedback.

Visit emeraldpublishing. Answers to the most commonly asked questions here. pdf KB Article view Figure view Cited 11 cite article. Article Supplementary Material Abstract Purpose This study examines the influence of economic policy uncertainty on financial flexibility before and during the coronavirus disease COVID pandemic.

Findings The evidence of this study suggests a negative association of economic policy uncertainty with debt flexibility during the COVID pandemic.

Practical implications The findings of this research are useful for tourism sector managers as they can effectively manage their cash and debt flexibility during crisis periods.

A high cash flexibility is associated with COVIDinduced EPU. Probit and logit regression results of EPU impact on debt Debt FF1 and cash Cash FF1 flexibility before and during COVID Probit Modelling Logit Modelling 1 2 3 4 5 6 7 8 Variable Pre-Covid During Covid Pre-Covid During Covid Pre-Covid During Covid Pre-Covid During Covid FF1 FF1 Cash FF1 Cash FF1 FF1 FF1 Cash FF1 Cash FF1 EPU 0.

Sales 0. Appendix The supplementary material for this article can be found online.

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Critical Steps to Achieving Financial Flexibility Flezibility conscious Responsive loan approval criteria can also Speedy loan processing More financial flexibility create a financial plan that strikes a balance between flexibipity your life now and saving finanxial the future. Diversification is key. The statistic sample used in the present study consists of companies accepted in Tehran stock exchange during the years to Those taking business courses will no doubt quickly think of the pandemic as the perfect example, causing many companies to scramble to find the cash to cover the cost of economic losses, or to quickly re-structure. Find the right savings account for you. How Valuable is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis

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