COVID-19’s Impact on Cash Holdings and Managers’ Risk Tolerance in Norwegian Industrial Firms

Abstract

In this master’s thesis we study the effects of the COVID-19 pandemic on cash holdings and managers’ risk tolerance in Norwegian industrial firms. Using a combination of quantitative and qualitative analysis through a mixed-methods research design we answer the two following research questions:

Research Question 1: To what degree has cash holdings changed in Norwegian industrial firms during and after the COVID-19 pandemic?

Research Question 2: To what degree has the COVID-19 pandemic had an effect on Norwegian managers’ risk tolerance?

Our sample consist of 19.726 firms from the industry sector, and we analyze ten years of publicly available accounting data collected from Proff Forvalt using a combination of regression analysis and descriptive statistics. Additionally, we interview 4 managers to better understand and support our findings.

As opposed to previous studies, which find that firms tend to increase their cash holdings in times of uncertainty as a precautionary motive, we find an increase in cash holdings as a result of increased cash flow. This indicates to us that the COVID-19 pandemic has not been as bad for Norwegian firms as we initially thought. We also find no evidence suggesting that managers have adjusted their risk profile towards potential futures crises, further mitigating the negative effects of the COVID-19 pandemic we expected to find.