FINANCIAL FLEXIBILITY AND STOCK RETURN OF BRAZILIAN COMPANIES: EVIDENCE DURING THE COVID-19 CRISIS

Objective: The objective was to verify the effect of financial flexibility on the value of shares of Brazilian companies during the pandemic period caused by COVID-19. Background: Financial flexibility is associated with the ability of a company to face financial difficulties, but there are still no studies in Brazil that show its relationship with the value of shares in periods with a shock to companies' revenues. Method: Regression analysis was applied to a cross-section of data with 102 companies listed on the Brazil Broad Index (IBRA). Two economic periods of the pandemic were considered, the collapse, between 2/2/2020 and 3/23/2020, and the stimulus to the economy, on 3/24/2020. Results: The evidence show that in the period of economic collapse, the financial flexibility due to debt capacity proved to be valuable for companies, especially for those most affected by COVID19, which had more pronounced reductions in revenues in the first half of 2020. We have also observed that the level of cash retention had no impact on stock returns during the collapse period. On the date of economic stimulus, the companies' cash level showed a positive relationship with the value of shares, but there were no evidence that this appreciation occurred for companies with more affected revenues. Contributions: This study contributes to the literature by verifying the impact of financial flexibility on the value of shares of Brazilian companies during two different economic moments of the pandemic, namely: the collapse and the stimulus to the economy.