Graduation Year
2022
Date of Submission
4-2022
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Professor Peter McAniff
Terms of Use & License Information
Rights Information
2022 Andrew F Wraith
Abstract
The onset COVID-19 Pandemic caused rippling effects throughout the global economy. Social distancing and stay at home orders shifted consumer demand, as the firmwide impact of these same policies led to supply chain shortages. The COVID-19 Pandemic induced a recession in 2020 that was unique from all others in US history. Throughout the beginning months of the Pandemic, firms rushed to raise debt, equity, and lines of credit, as public financing markets experienced increased volatility. How did the markets adapt to this sudden change? I examine the effect on stock returns of firmwide Balance Sheet strength as it changed throughout the Pandemic. Results indicate that firms with stronger Balance Sheets were better equipped to deal with these unexpected exogenous shocks and were rewarded with better stock returns. Balance sheet strength in the short term (liquidity) and the long term (solvency) were significant positive indicators of stock market return in 2020 Quarter 1. In later quarters, firms with more short-term liquidity had lower returns, which was explained by the opportunity cost of investing in liquid assets.
Recommended Citation
Wraith, Andrew, "Balance Sheet Strength: A Retrospective Analysis of Corporate Liquidity and Solvency and Firm Stock Returns" (2022). CMC Senior Theses. 2970.
https://scholarship.claremont.edu/cmc_theses/2970
