Risk Contagion of COVID–19 in Japanese Firms: A Network Approach

Abstract

Novel coronavirus disease (COVID–19) is one of the worst pandemics in human history. Our research objective is to assess the contagion effect on Japanese firms and to evaluate the Japanese government’s COVID–19 measures during the period from April 7, 2020 to May 25, 2020. We propose a susceptible-infected-recovered-dead model for COVID–19 and derive the COVID–19 parameters for Japan. Subsequently, we analyze the impact of COVID–19 on Japanese firms through correlation-based network and credit risk analyses. A primary finding is that COVID–19 parameters are almost the only risk factors that impact a firm’s credit risk during the period. Finally, we find that the analysis of the interconnection between the COVID–19 infection network and the financial networks contributes to the existing knowledge of pandemic risk management.

Keywords: COVID–19; risk contagion; susceptible-infected-recovered-dead (SIRD) model; correlation-based network; stock market; net cash

JEL Classification: C51; G32; G10; D85; L14