The Impact of COVID-19 on Supply Chain Credit Risk

45 Pages Posted: 1 Jul 2020 Last revised: 25 Nov 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 pandemic by focusing on CDS spreads and US-China supply chain links. We find considerable effects on credit risk propagation. CDS spreads for firms with China supply chain partners increase with supply chain disruptions during the economic shutdown period of the pandemic, and the spreads go down when the economic activity resumes with re-opening in China. The household demand channel is an important driver of this supply chain credit risk behavior. Supply chain activity resumption is not sufficient to decrease credit risk in sectors that cater to households when the local economy suffers from dampened household spending due to economic shutdowns. Having a more global customer base, on the other hand, mitigates the local household demand shock effects. While firm leverage and supply chain duration magnify supply chain driven credit risk during the pandemic, cash holdings, growth opportunities, investment-grade rating, and supply chain network centrality 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 or http://dx.doi.org/10.2139/ssrn.3639735

Senay Agca

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

2201 G Street
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Washington, DC 20052
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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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