Firm Finances and the Spread of COVID-19: Evidence from Nursing Homes

Residents of senior-care facilities account for over 40% of COVID-19-related deaths in the United States despite making up less than 1% of the population. We show that differences in nursing homes’ finances help explain cross-sectional variation in the incidence of COVID-19. In addition to large drops in revenues, nursing homes were forced to make difficult risk mitigation investment decisions in the face of staggering increases in equipment, testing, and labor costs. We find that nursing homes with less liquidity (pre-pandemic days-cash-on-hand) had a higher likelihood of COVID-19 in their facility. Those with larger negative shocks to cash flow – thus lowering firm value and moving them closer to financial distress – also had a higher likelihood of COVID-19. These results have implications for the role finances can play in the welfare of customers, employees, and for broader public health.