Abstract
This research aims to investigate the main drivers of financial performance during the COVID-19 outbreak, particularly the role of national government and firm policy in relation to the negative economic effects of the COVID-19 outbreak on firms' performance. A generalized linear model (GLM) has been conducted to test the influence of government assistance and cash holding on the financial performance of 79 firms listed in FTSE Italia over 2020. Likewise, our research adopts the Second Stage Least Squares Method (2SLS) and Generalized Method of Moments (GMM) to examine the moderating effect of cash held on the association between COVID-19 outbreak and firms' performance. Our results suggest that the Italian government aids their firms during the COVID-19 outbreak to support their financial performance, and firms themselves increase the level of cash holding to continue their operations as a crisis management policy to face the COVID-19 outbreak. Moreover, cash holding as a moderator weakens the negative impact of the COVID-19 outbreak on the financial firms' performance. Therefore, during the COVID-19 outbreak, national governments and firms should consider a crisis management policy to reduce the negative effects on the firms' performance, mainly government financial assistance and cash holdings to sustain firms' operations during the outbreak.
Highlights
COVID-19 crisis has had an extraordinary impact on firms all over the world
Based on the previous literature, we argue that the COVID-19 outbreak may affect the operational activities of firms negatively, and we need to shed light on government assistance as an appropriate policy for crisis management that may help firms continue their operations during this hard situation
Our results confirmed that boardroom members met (Brd MEET) on average 10 times during the COVID-19 outbreak, and the online board meetings held during 2020 motivated firms to revise their tactics to lessen the negative threat of the COVID-19 outbreak
Summary
COVID-19 crisis has had an extraordinary impact on firms all over the world. There is little evidence available in the literature on addressing the economic impact of the COVID-19 outbreak [27],[30]. It is vital to investigate the various government policies rolled out to support Italian businesses during the COVID-19 outbreak. We attempt to take a step on that path and present the different theoretical arguments and empirical evidence that test the endogenous effect of cash holding on the relationship between COVID-19 and the financial performance of Italian listed firms for the year 2020. We go beyond the earlier studies that ignore endogeneity and propose a new approach to study the interactive effect of cash holding on the relationship between COVID-19 and the financial performance of Italian-listed firms
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