How valuable is financial flexibility? Evidence from listed Norwegian companies during the Covid-19 pandemic

Abstract

This thesis aims to provide empirical evidence for the value of financial flexibility when a sudden and unexpected event occurs that results in a cash-flow shortfall, using the ongoing pandemic as an example. We find significant differences in abnormal stock returns for listed Norwegian companies with different degrees of financial flexibility during the period of Covid-19 restrictions. Contrary to previous research, our results show that financial flexibility had a negative effect on performance during the sell-off period. On stimulus day, we find no significant value. However, for the following recovery period, we find that financial flexibility positively affected abnormal stock returns for our data sample.