IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v32y2023i12p4088-4113.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.14079
    Download Restriction: no
    File URL: https://libkey.io/10.1111/poms.14079?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu & Pablo D. Azar, 2020. "Endogenous Production Networks," Econometrica, Econometric Society, vol. 88(1), pages 33-82, January.
    2. Defever, Fabrice & Imbruno, Michele & Kneller, Richard, 2020. "Trade liberalization, input intermediaries and firm productivity: Evidence from China," Journal of International Economics, Elsevier, vol. 126(C).
    3. Stohs, Mark Hoven & Mauer, David C, 1996. "The Determinants of Corporate Debt Maturity Structure," The Journal of Business, University of Chicago Press, vol. 69(3), pages 279-312, July.
    4. Vasco M Carvalho & Makoto Nirei & Yukiko U Saito & Alireza Tahbaz-Salehi, 2021. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1255-1321.
    5. Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-416, May.
    6. ManMohan S. Sodhi & Christopher S. Tang, 2012. "Supply Chain Risk Management," International Series in Operations Research & Management Science, in: Managing Supply Chain Risk, edition 127, chapter 0, pages 3-11, Springer.
    7. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    8. Darrell Duffie & Andreas Eckner & Guillaume Horel & Leandro Saita, 2009. "Frailty Correlated Default," Journal of Finance, American Finance Association, vol. 64(5), pages 2089-2123, October.
    9. Shleifer, Andrei & Vishny, Robert W, 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    10. Yasin Alan & George P. Gao & Vishal Gaur, 2014. "Does Inventory Productivity Predict Future Stock Returns? A Retailing Industry Perspective," Management Science, INFORMS, vol. 60(10), pages 2416-2434, November.
    11. Nitish Jain & Karan Girotra & Serguei Netessine, 2014. "Managing Global Sourcing: Inventory Performance," Management Science, INFORMS, vol. 60(5), pages 1202-1222, May.
    12. Morris A. Cohen & Panos Kouvelis, 2021. "Revisit of AAA Excellence of Global Value Chains: Robustness, Resilience, and Realignment," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 633-643, March.
    13. Bruno Cassiman & Reinhilde Veugelers, 2002. "R&D Cooperation and Spillovers: Some Empirical Evidence from Belgium," American Economic Review, American Economic Association, vol. 92(4), pages 1169-1184, September.
    14. Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007. "Common Failings: How Corporate Defaults Are Correlated," Journal of Finance, American Finance Association, vol. 62(1), pages 93-117, February.
    15. Lee, Jongsub & Naranjo, Andy & Velioglu, Guner, 2018. "When do CDS spreads lead? Rating events, private entities, and firm-specific information flows," Journal of Financial Economics, Elsevier, vol. 130(3), pages 556-578.
    16. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    17. Senay Agca & Volodymyr Babich & John R. Birge & Jing Wu, 2022. "Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market," Management Science, INFORMS, vol. 68(9), pages 6506-6538, September.
    18. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    19. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    20. Anna M. Costello, 2020. "Credit Market Disruptions and Liquidity Spillover Effects in the Supply Chain," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3434-3468.
    21. Michael Gofman & Gill Segal & Youchang Wu & Stijn Van Nieuwerburgh, 2020. "Production Networks and Stock Returns: The Role of Vertical Creative Destruction," The Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5856-5905.
    22. Vasco M Carvalho & Makoto Nirei & Yukiko U Saito & Alireza Tahbaz-Salehi, 0. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," The Quarterly Journal of Economics, Oxford University Press, vol. 136(2), pages 1255-1321.
    23. William Ho & Tian Zheng & Hakan Yildiz & Srinivas Talluri, 2015. "Supply chain risk management: a literature review," International Journal of Production Research, Taylor & Francis Journals, vol. 53(16), pages 5031-5069, August.
    24. Hertzel, Michael G. & Officer, Micah S., 2012. "Industry contagion in loan spreads," Journal of Financial Economics, Elsevier, vol. 103(3), pages 493-506.
    25. Fang Liu & Jing-Sheng Song & Jordan D. Tong, 2016. "Building Supply Chain Resilience through Virtual Stockpile Pooling," Production and Operations Management, Production and Operations Management Society, vol. 25(10), pages 1745-1762, October.
    26. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    27. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    28. Tang, Ou & Nurmaya Musa, S., 2011. "Identifying risk issues and research advancements in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 133(1), pages 25-34, September.
    29. Rene M. Stulz, 2010. "Credit Default Swaps and the Credit Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 73-92, Winter.
    30. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    31. Kevin B. Hendricks & Brian W. Jacobs & Vinod R. Singhal, 2020. "Stock Market Reaction to Supply Chain Disruptions from the 2011 Great East Japan Earthquake," Manufacturing & Service Operations Management, INFORMS, vol. 22(4), pages 683-699, July.
    32. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    33. Morris A. Cohen & Shiliang Cui & Ricardo Ernst & Arnd Huchzermeier & Panos Kouvelis & Hau L. Lee & Hirofumi Matsuo & Marc Steuber & Andy A. Tsay, 2018. "OM Forum—Benchmarking Global Production Sourcing Decisions: Where and Why Firms Offshore and Reshore," Manufacturing & Service Operations Management, INFORMS, vol. 20(3), pages 389-402, July.
    34. Jorion, Philippe & Zhang, Gaiyan, 2007. "Good and bad credit contagion: Evidence from credit default swaps," Journal of Financial Economics, Elsevier, vol. 84(3), pages 860-883, June.
    35. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1543-1592.
    36. Kenneth R. Ahern & Jarrad Harford, 2014. "The Importance of Industry Links in Merger Waves," Journal of Finance, American Finance Association, vol. 69(2), pages 527-576, April.
    37. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    38. Sushil Gupta & Martin K. Starr & Reza Zanjirani Farahani & Niki Matinrad, 2016. "Disaster Management from a POM Perspective: Mapping a New Domain," Production and Operations Management, Production and Operations Management Society, vol. 25(10), pages 1611-1637, October.
    39. Nina Boyarchenko & Anna M. Costello & Or Shachar, 2020. "The Long and Short of It: The Post-Crisis Corporate CDS Market," Economic Policy Review, Federal Reserve Bank of New York, vol. 26(3), pages 1-49, June.
    40. Heather Berry & Aseem Kaul, 2015. "Global Sourcing and Foreign Knowledge Seeking," Management Science, INFORMS, vol. 61(5), pages 1052-1071, May.
    41. Roberto Blanco & Simon Brennan & Ian W. Marsh, 2005. "An Empirical Analysis of the Dynamic Relation between Investment‐Grade Bonds and Credit Default Swaps," Journal of Finance, American Finance Association, vol. 60(5), pages 2255-2281, October.
    42. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    43. ManMohan S. Sodhi & Christopher S. Tang, 2012. "Researchers’ Perspectives on Supply-Chain Risk Research," International Series in Operations Research & Management Science, in: Managing Supply Chain Risk, edition 127, chapter 0, pages 281-301, Springer.
    44. Maddah, Bacel & Yassine, Ali A. & Salameh, Moueen K. & Chatila, Lama, 2014. "Reserve stock models: Deterioration and preventive replenishment," European Journal of Operational Research, Elsevier, vol. 232(1), pages 64-71.
    45. He, Zhiguo & Kelly, Bryan & Manela, Asaf, 2017. "Intermediary asset pricing: New evidence from many asset classes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 1-35.
    46. Burak Kazaz & Maqbool Dada & Herbert Moskowitz, 2005. "Global Production Planning Under Exchange-Rate Uncertainty," Management Science, INFORMS, vol. 51(7), pages 1101-1119, July.
    47. Hyunseob Kim & Howard Kung, 2017. "The Asset Redeployability Channel: How Uncertainty Affects Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 245-280.
    48. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    49. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    50. Stulz, ReneM. & Johnson, Herb, 1985. "An analysis of secured debt," Journal of Financial Economics, Elsevier, vol. 14(4), pages 501-521, December.
    51. Morris A. Cohen & Hau L. Lee, 2020. "Designing the Right Global Supply Chain Network," Manufacturing & Service Operations Management, INFORMS, vol. 22(1), pages 15-24, January.
    52. Ding, Haoyuan & Fan, Haichao & Lin, Shu, 2022. "COVID-19, firm exposure, and firm value: A tale of two lockdowns," China Economic Review, Elsevier, vol. 71(C).
    53. Sergey Rumyantsev & Serguei Netessine, 2007. "What Can Be Learned from Classical Inventory Models? A Cross-Industry Exploratory Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 409-429, April.
    54. Vishal Gaur & Saravanan Kesavan, 2015. "The Effects of Firm Size and Sales Growth Rate on Inventory Turnover Performance in the U.S. Retail Sector," International Series in Operations Research & Management Science, in: Narendra Agrawal & Stephen A. Smith (ed.), Retail Supply Chain Management, edition 2, chapter 0, pages 25-52, Springer.
    55. Scott R. Baker & Nicholas Bloom & Steven J. Davis & Kyle J. Kost & Marco C. Sammon & Tasaneeya Viratyosin, 2020. "The Unprecedented Stock Market Impact of COVID-19," NBER Working Papers 26945, National Bureau of Economic Research, Inc.
    56. Nikolay Osadchiy & William Schmidt & Jing Wu, 2021. "The Bullwhip Effect in Supply Networks," Management Science, INFORMS, vol. 67(10), pages 6153-6173, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Zheng & Li, Dongchen & Qian, Linyi & Yao, Jing, 2024. "On the pricing of vulnerable Parisian options," Finance Research Letters, Elsevier, vol. 68(C).
    2. Liudmila I. Khoruzhy & Valery I. Khoruzhy & Bogdan S. Vasyakin & Wenhao Shen, 2022. "Program-Targeted Approach to Managing Financial Risks of Sustainable Development Based on Corporate Social Responsibility in the Decade of Action," Risks, MDPI, vol. 10(3), pages 1-20, March.
    3. Maria Czech, 2022. "The Impact of Covid-19 Dynamics on SCDS Spreads in Selected CEE Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 254-271.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Senay Agca & Volodymyr Babich & John R. Birge & Jing Wu, 2022. "Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market," Management Science, INFORMS, vol. 68(9), pages 6506-6538, September.
    2. Spatareanu, Mariana & Manole, Vlad & Kabiri, Ali & Roland, Isabelle, 2023. "Bank default risk propagation along supply chains: Evidence from the U.K," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 813-831.
    3. Ding, Li & Lam, Hugo K.S. & Cheng, T.C.E. & Zhou, Honggeng, 2021. "The contagion and competitive effects across national borders: Evidence from the 2016 Kumamoto earthquakes," International Journal of Production Economics, Elsevier, vol. 235(C).
    4. Spatareanu, Mariana & Manole, Vlad & Kabiri, Ali & Roland, Isabelle, 2023. "Bank default risk propagation along supply chains: evidence from the U.K," LSE Research Online Documents on Economics 117351, London School of Economics and Political Science, LSE Library.
    5. Lei, Jin & Qiu, Jiaping & Wan, Chi & Yu, Fan, 2021. "Credit risk spillovers and cash holdings," Journal of Corporate Finance, Elsevier, vol. 68(C).
    6. Ali Kabiri & Vlad Malone & Isabelle Roland & Mariana Spatareanu, 2020. "Bank default risk propagation along supply chains: evidence from the UK," CEP Discussion Papers dp1699, Centre for Economic Performance, LSE.
    7. Spatareanu, M. & Manole, V. & Kabiri, A. & Roland, I., 2020. "Bank Default Risk Propagation along Supply Chains: Evidence from the U.K," Cambridge Working Papers in Economics 2058, Faculty of Economics, University of Cambridge.
    8. Yu, Miao & Hu, Xiaolu & Zhong, Angel, 2024. "Network centrality, information diffusion and asset pricing," International Review of Financial Analysis, Elsevier, vol. 93(C).
    9. Thomas J. Sargent & John Stachurski, 2022. "Economic Networks: Theory and Computation," Papers 2203.11972, arXiv.org, revised Jul 2022.
    10. Azizpour, S & Giesecke, K. & Schwenkler, G., 2018. "Exploring the sources of default clustering," Journal of Financial Economics, Elsevier, vol. 129(1), pages 154-183.
    11. Andrieș, Alin Marius & Ongena, Steven & Sprincean, Nicu, 2021. "The COVID-19 Pandemic and Sovereign Bond Risk," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    12. Emmanuel Dhyne & Ayumu Ken Kikkawa & Glenn Magerman, 2022. "Imperfect Competition in Firm-to-Firm Trade," Journal of the European Economic Association, European Economic Association, vol. 20(5), pages 1933-1970.
    13. Längle, Katharina & Xu, Ankai & Tian, Ruijie, 2021. "Assessing the supply chain effect of natural disasters: Evidence from Chinese manufacturers," WTO Staff Working Papers ERSD-2021-13, World Trade Organization (WTO), Economic Research and Statistics Division.
    14. Basile Grassi & Julien Sauvagnat, 2019. "Production networks and economic policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(4), pages 638-677.
    15. Nicole Branger & Patrick Konermann & Christoph Meinerding & Christian Schlag, 2021. "Equilibrium Asset Pricing in Directed Networks [Risk premia and term premia in general equilibrium]," Review of Finance, European Finance Association, vol. 25(3), pages 777-818.
    16. Lili Dai & Rui Dai & Lilian Ng & Zihang Peng, 2024. "Global outsourcing and voluntary disclosure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 51(3-4), pages 846-879, March.
    17. Chen, Peimin & Wu, Chunchi, 2014. "Default prediction with dynamic sectoral and macroeconomic frailties," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 211-226.
    18. Peydró, José-Luis & Jiménez, Gabriel & Kenan, Huremovic & Moral-Benito, Enrique & Vega-Redondo, Fernando, 2020. "Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers," CEPR Discussion Papers 15277, C.E.P.R. Discussion Papers.
    19. Huang, Yi & Lin, Chen & Liu, Sibo & Tang, Heiwai, 2023. "Trade networks and firm value: Evidence from the U.S.-China trade war," Journal of International Economics, Elsevier, vol. 145(C).
    20. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:32:y:2023:i:12:p:4088-4113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.