The Impact of COVID-19 on Supply Chain Credit Risk

52 Pages Posted: 1 Jul 2020 Last revised: 5 May 2023

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

While global supply chains provide firms with a buffer against local shocks, they expose firms to multi-regional risks. The COVID-19 pandemic and its differential impact on different regions in the world offer an opportunity to explore these effects. We investigate the multi-regional supply chain risk by focusing on credit risk measured by abnormal CDS spreads and US-China supply chain networks. Our evidence shows that local risks propagate through global supply chains to other regions. Using a matched sample, we find that abnormal CDS spreads for firms with Chinese supply chain partners increase by 12-13 percent relative to the average raw CDS spreads due to supply chain disruptions during the economic shutdown in China, and the abnormal CDS spreads decrease by 9-13 percent relative to the average raw CDS spreads when the supply chain activities resume in China. We also find that having a more global customer base can mitigate the effects of local household demand shocks. Lastly, we discover that firm size, supply chain network centrality, cash holdings, inventory, strong credit ratings, capital redeployability, and the number of segments increase resilience to global supply chain shocks, while financial leverage, operational leverage, and market competition weaken supply chain resilience.

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

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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