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The impact of COVID‐19 on supply chain credit risk

Author

Listed:
  • Şenay Ağca
  • John R. Birge
  • Zi'ang Wang
  • Jing Wu

Abstract

While global supply chains provide firms with a buffer against local shocks, they expose firms to multiregional 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 multiregional supply chain risk by focusing on credit risk measured by abnormal credit default swaps (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% to 13% 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% to 13% 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.

Suggested Citation

  • Şenay Ağca & John R. Birge & Zi'ang Wang & Jing Wu, 2023. "The impact of COVID‐19 on supply chain credit risk," Production and Operations Management, Production and Operations Management Society, vol. 32(12), pages 4088-4113, December.
    • Handle: RePEc:bla:popmgt:v:32:y:2023:i:12:p:4088-4113
    DOI: 10.1111/poms.14079
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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