Equity financing during the Covid-19 economic downturn

We examine the effect of raising equity during the exogenous shock of Covid-19 economic downturn. Using a difference-in-differences methodology, we find that firms that issue equity during Covid-19 exhibit higher stock performance and lower likelihood of financial distress. Also, issuing firms maintain their payout and investment decisions and increase dividends and R&D through the pandemic. We further show that early issuers use the capital raised to build up more cash reserves while later issuers use the capital to increase investment activities. Firms that issue equity publicly tend to increase their dividend and R&D activities, while private equity issuers tend to increase more their cash reserves. Finally, issuers from industries that were highly affected by the pandemic experience higher stock performance and build more cash reserves, while those from less affected industries exhibit lower likelihood of default and increase dividends and R&D activities.