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.
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