The Impact of COVID-19 on Supply Chain Credit Risk

38 Pages Posted: 1 Jul 2020 Last revised: 2 Jul 2020

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

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

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

Senay Agca

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

2201 G Street
Funger Hall 505
Washington, DC 20052
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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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