Abstract
We investigate the relationship between firms’ cash holdings and pandemics. Our results show that as compared to tele-workable firms, whose employees can work remotely, non-tele-workable firms with more on-site employees increase cash during pandemics. This increase in cash comes from short-debt, preferred stocks, reduction in capital expenditures and discontinuation of some operations. Firms hold more cash as a reaction to higher default risk. For non-tele-workable firms, there is a positive relationship between abnormal stock returns and cash, suggesting that this increase in cash during pandemics is not driven by behavioral reasons, but by increases in uncertainty in labor productivity.