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- Title
INVESTIGATING THE OPTIMAL EXIT TIMING AND LEVERAGE DURING THE COVID-19 CRISIS.
- Authors
ABDELHAMID, Mohamed Ben; BELLALAH, Makram
- Abstract
This paper investigates the effectiveness of the corporate credit policies as a means of preventing market exit in the aftermath of the COVID-19 pandemic. A real options framework incorporating dynamic programming is employed to investigate the relationship between exit decisions, leverage ratio and productivity uncertainty. Our paper presents a novel approach to the exit problem in comparison to other attempts in early 2020. Taking into account the dynamics of firms, we allow for a variety of factors, such as productivity uncertainty, debt readjustment, liquidity constraints, and leverage level, to explain the optimal time for a firm to exit during the COVID-19 pandemic. Our results indicate that the corporate credit programs have a significant positive impact and suggests that a greater leverage ratio increases the likelihood of survival and delays the decision to exit.
- Subjects
COVID-19 pandemic; MARKET exit; CREDIT control; ORGANIZATIONAL effectiveness; DYNAMIC programming; REAL options (Finance)
- Publication
Financial Studies, 2023, Vol 27, Issue 1, p18
- ISSN
2066-6071
- Publication type
Article