COVID-19 Pandemic and Global Corporate CDS Spreads

50 Pages Posted: 11 Jun 2021 Last revised: 18 Jul 2022

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Miriam Marra

University of Reading - ICMA Centre, Henley Business School

Thomas Y. To

University of Sydney Business School

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Date Written: July 15, 2022

Abstract

We examine the impact of the COVID-19 pandemic on the credit risk of companies around the world. We find that increased infection rates affect firms more adversely as reflected by the wider increase in their credit default swap (CDS) spreads if they are larger, more leveraged, closer to default, have worse governance and more limited stakeholder engagement, and operate in more highly exposed industries. We observe that country-level determinants such as GDP, political stability, foreign direct investment, and commitment to crisis management (income support, health and lockdown policies) also affect the sensitivity of CDS spreads to COVID-19 infection rates. A negative amplification effect exists for firms with high default probability in countries with fiscal constraints. A direct comparison between global CDS and stock markets reveals that the CDS market prices in a distinct set of corporate traits and government policies in pandemic times.

Keywords: Global corporate CDS, COVID-19 pandemic, employee health policies, government anti-COVID-19 policies, vaccine news

JEL Classification: G15, G18, G38, M14

Suggested Citation

Hasan, Iftekhar and Marra, Miriam and To, Thomas Yin and Wu, Eliza and Zhang, Gaiyan, COVID-19 Pandemic and Global Corporate CDS Spreads (July 15, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3858059 or http://dx.doi.org/10.2139/ssrn.3858059

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Miriam Marra (Contact Author)

University of Reading - ICMA Centre, Henley Business School ( email )

ICMA Centre - Henley Business School - University
Whiteknights Campus
Reading, RG6 6BA
United Kingdom

Thomas Yin To

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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