Cash and investment of Brazilian companies: COVID-19 evidence

Purpose This study aims to investigate whether high levels of cash reserves prior to the COVID-19 pandemic positively impacted corporate investment during the crisis. More specifically, it investigates whether cash mitigated the negative impacts of the pandemic on corporate investment. Design/methodology/approach The empirical research approach adopted was a difference-in-difference approach, using a fixed-effects panel data model in which the dependent variable is the ratio of companies' Capex to total assets, and the explanatory variable of interest is the interaction between companies' financial position in the last quarter of 2018 and the dummy variable COVID-. Findings Results confirm the proposed hypothesis that there is a positive relationship between maintaining high cash reserves prior to the COVID-19 pandemic and Brazilian companies' investment during this period. In the case of financially constrained companies, the effects tend to be even greater. Originality/value This study contributes by providing Brazil-specific evidence that pre-pandemic cash buffers mitigated the investment downturn during COVID-19, especially among financially constrained firms, using a diff-in-diff identification.