COVID-19 Shock and Interest Expense Stickiness: Evidence from Chinese Listed Firms

ABSTRACT

The COVID-19 pandemic subjected firms to liquidity pressure and financing difficulties. Our study examines bank credit availability in response to the pandemic by testing the firm’s interest expense stickiness. We found that interest expense stickiness was widespread in Chinese listed firms, particularly in state-owned enterprises and large firms. Moreover, interest expenses were stickier during COVID-19 compared to before COVID-19. Interest expense stickiness gradually increased in private and small firms after the COVID-19, indicating that banks provided more credit support for these firms after their sharp revenue declines. Finally, we found that the stronger interest expense stickiness could improve firm’s performance.

KEYWORDS:

• COVID-19 pandemic
• interest expenses
• cost stickiness

Acknowledgments

All authors thank the editor and the anonymous reviewers for their constructive comments and suggestions for improving the quality of this paper.

Disclosure Statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Additional information

Funding

This research was funded by the following projects. Chinese National Funding of Social Sciences [20CGL015]; China Postdoctoral Science Foundation [2020M683348]; Department of Science and Technology of Sichuan Province [2021JDR0304]; Sichuan Social Science Research Planning Project [SC19C036]