The Impact of COVID-19 on Supply Chain Credit Risk

38 Pages Posted: 1 Jul 2020 Last revised: 15 Nov 2021

See all articles by Senay Agca

Senay Agca

George Washington University - School of Business, Department of Finance

John R. Birge

University of Chicago - Booth School of Business

Zi'ang Wang

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: July 1, 2020

Abstract

Global supply chains expose firms to multi-regional risks while also providing a buffer against local shocks. The recent COVID-19 pandemic and its differential impact on different regions in the world provide an opportunity to explore these effects. We examine multi-regional supply chain risk by focusing on credit risk as measured by CDS spreads and US-China supply chain networks. We find that local risks propagate through global supply chains to other regions. CDS spreads for firms with Chinese supply chain partners increase by 8-9 percent due to supply chain disruptions during the pandemic-related economic shutdown period in China, and the spreads decrease by 12-20 percent when the supply chain activities resume during the economic re-opening period. The household demand channel plays an important role in this risk propagation. We find that supply chain activity resumption is insufficient to decrease credit risk in sectors that cater to local households when the local economy suffers from dampened household spending due to economic shutdowns. Having a more global customer base mitigates the local household demand shock effects. Firm leverage and supply chain duration weaken supply chain resilience as reflected in credit risk during the pandemic, whereas supply chain network centrality, cash holdings, growth opportunities, and strong credit ratings increase resilience in global supply chains.

Keywords: Supply Chains, Credit Risk, CDS, COVID-19, Pandemic

JEL Classification: E21, E51, F23, G12, G14, G23, G32, L11

Suggested Citation

Agca, Senay and Birge, John R. and Wang, Zi'ang and Wu, Jing, The Impact of COVID-19 on Supply Chain Credit Risk (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3639735 or http://dx.doi.org/10.2139/ssrn.3639735

Senay Agca

George Washington University - School of Business, Department of Finance ( email )

2201 G Street
Funger Hall 505
Washington, DC 20052
United States
202-994-9209 (Phone)
202-994-5014 (Fax)

HOME PAGE: http://sites.google.com/site/senayagcaweb/

John R. Birge

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Zi'ang Wang

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Jing Wu (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.jingwulab.org

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