The Impact of COVID-19 on Supply Chain Credit Risk
38 Pages Posted: 1 Jul 2020 Last revised: 2 Jul 2020
Date Written: July 1, 2020
We examine how supply chain activity reflects into credit risk during different phases of the COVID-19 by focusing on CDS spreads and US-China supply chain links. We find considerable effects on credit risk. During the economic shutdown of the pandemic, CDS spreads increase with supply chain disruptions and spreads go down when the activity resumes with re-opening of the economy. The household demand channel is an important driver of how supply chains reflect in credit risk. Supply chain activity resumption is not sufficient in sectors that cater to households when the local economy suffers from dampened household demand due to economic shutdowns. Such effects are not observed for sectors that cater more to businesses. While firm leverage, product market competition, and supply chain duration magnify the impact of supply chain activity on credit risk during the pandemic, cash holdings, capital redeployability, growth opportunities, and investment-grade rating moderate such effects.
Keywords: Supply Chains, Credit Risk, COVID-19, Pandemic
JEL Classification: E21, E51, F23, G12, G14, G23, G32, L11
Suggested Citation: Suggested Citation