The Effect of COVID-19 Uncertainty on Corporate Default Risk: International evidence

Authors

Md Ismail Haidar, The University of Texas Rio Grande Valley
Md Showaib Rahman Sarker
André Varella Mollick, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

8-2023

Abstract

This paper investigates the effect of COVID-19 uncertainty on corporate default risk using an international sample of firms from 71 countries. We document that corporate default risk increases with higher COVID-19 uncertainty, even after controlling for a wide range of firmlevel and country-level characteristics. The effect is weaker for firms in highly religious adherence countries, stronger for firms in developed countries, and for firms geographically closer to China and Italy. Further, the effect is weaker for highly innovative firms and less financially constrained firms. Our findings are robust to propensity score matching and entropy balancing methods to address selection bias, diagnostic tests regarding omitted variable bias, and alternative measures of COVID-19 uncertainty and default risk.

Recommended Citation

Haidar, Md Ismail and Sarker, Md Showaib Rahman and Mollick, Andre, The Effect of Covid-19 Uncertainty on Corporate Default Risk: International Evidence. Available at SSRN: https://ssrn.com/abstract=4566622 or http://dx.doi.org/10.2139/ssrn.4566622