Working papers

The outbreak of the COVID-19 pandemic was a massive uncertainty shock to corporate cash flows. We examine its effect on firms’ strategies for preserving short-term capital by suspending dividends or share repurchase programs and raising new funds through bond and equity issues. We identify a short list of firm and stock characteristics that explains most of the cross-sectional variation in firms’ payout and fundraising decisions. We show that the expansive monetary policy stance pursued by the Federal Reserve in the early phase of the pandemic had a crucial impact on how firms timed and sequenced their actions. Movements in stock returns in the days surrounding corporate announcements were highly unusual during the pandemic, with suspensions of dividends or buybacks leading stock prices to recover, consistent with investors interpreting them as prudent actions that helped reduce firm risks.

Firms suspended dividend payments in unprecedented numbers and at unparalleled speed in response to the outbreak of the Covid-19 pandemic. We develop a dynamic econometric model that allows dividend suspensions to affect the conditional mean, volatility, and jump probability of growth in daily dividends and demonstrate how the parameters of this model can be estimated using Bayesian Gibbs sampling methods. We find that dividend suspensions had a sharp and immediate impact on the conditional mean and volatility of daily dividend growth. Information embedded in daily dividend suspensions proves valuable in monitoring and predicting the trajectory of broader measures of economic activity during the pandemic.

Published and forthcoming articles


Work in progress

  • Pettenuzzo, D., Sabbatucci, R. The Term Structure and Cross-Section of Cash Flow Risk (September 2020)
    • INQUIRE 2020 Europe Research Grant
  • Kastner, G., Pettenuzzo, D., Timmermann, A. Time-varying Risk Premia and Volatility Dynamics in Multi-Asset Class Returns