The Impact of COVID-19 on Firms’ Cost of Equity Capital: Early Evidence from U.S. Public Firms

Abstract This paper examines how the COVID-19 pandemic affects firms’ cost of equity capital. I use analyst earnings forecasts and stock prices data to estimate firms’ cost of equity capital. With 18,740 firm-month observations from September 2019 to August 2020, I show that firms experienced an increase in the cost of equity capital during the pandemic. On average, the cost of equity capital increased about 172 basis-points. The effect is also more pronounced in firms with greater COVID-19 exposure. Overall, I document a significantly adverse impact of COVID-19 on firms’ cost of capital.