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COVID-19 Pandemic and Global Corporate CDS Spreads

Author

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  • Hasan, Iftekhar
  • Marra, Miriam
  • To, Thomas Y.
  • Wu, Eliza
  • Zhang, Gaiyan

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.

Suggested Citation

  • Hasan, Iftekhar & Marra, Miriam & To, Thomas Y. & Wu, Eliza & Zhang, Gaiyan, 2023. "COVID-19 Pandemic and Global Corporate CDS Spreads," Journal of Banking & Finance, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:jbfina:v:147:y:2023:i:c:s0378426622001984
    DOI: 10.1016/j.jbankfin.2022.106618
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    More about this item

    Keywords

    Global corporate CDS; COVID-19; corporate resilience; government policies; relative market efficiency;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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