How Corporate Liquidity Reacts to COVID-19 Outbreak? Evidence from Listed Corporations in Saudi Arabia

The outbreak of the COVID-19 pandemic remarkably influenced the global economy and hence corporate decisions. This study investigates corporate liquidity policy reaction to the COVID-19 pandemic by comparing corporate cash holdings levels before and after the COVID-19 crisis. Using quarterly data of listed non-financial firms in Saudi Arabia over the years 2018-2021 and employing a paired-sample univariate analysis, this study found that the COVID-19 outbreak significantly influenced corporate liquidity decisions. In particular, the results show a significant difference in the cash holdings levels between the periods before and after the COVID-19 crisis. Firms’ cash holdings are significantly higher after COVID-19 in comparison to cash holdings before the pandemic. These findings support the trade-off theory’s precautionary and transaction cost motives for holding liquid assets. The outcomes of this study provide important implications for policymakers, corporate managers, and lenders.