COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach

This paper conducts a simple stress test to gauge the ability of listed nonfinancial corporates to withstand shocks to earnings and receivables. It targets two basic accounting ratios that capture a firm’s ability to cover its short-term liabilities and interest expenses. The sample consists of almo...

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Main Authors:	Feyen, Erik, Dancausa, Fernando, Gurhy, Bryan, Nie, Owen
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	CORONAVIRUS COVID-19 PANDEMIC IMPACT EMERGING MARKET ECONOMIES CORPORATE VULNERABILITY DEBT CORPORATE PERFORMANCE ECONOMIC SHOCK DEBT DISTRESS
Online Access:	http://documents.worldbank.org/curated/en/216811595260577407/COVID-19-and-EMDE-Corporate-Balance-Sheet-Vulnerabilities-A-Simple-Stress-Test-Approach http://hdl.handle.net/10986/34170

id	okr-10986-34170
recordtype	oai_dc
spelling	okr-10986-341702022-09-20T00:11:06Z COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach Feyen, Erik Dancausa, Fernando Gurhy, Bryan Nie, Owen CORONAVIRUS COVID-19 PANDEMIC IMPACT EMERGING MARKET ECONOMIES CORPORATE VULNERABILITY DEBT CORPORATE PERFORMANCE ECONOMIC SHOCK DEBT DISTRESS This paper conducts a simple stress test to gauge the ability of listed nonfinancial corporates to withstand shocks to earnings and receivables. It targets two basic accounting ratios that capture a firm’s ability to cover its short-term liabilities and interest expenses. The sample consists of almost 17,000 firms in 73 countries and represents US$22.1 trillion in total assets and US$6.05 trillion in total debt. The findings show that, prior to the pandemic, almost 60 percent of the debt was associated with firms that already exhibited vulnerabilities according to at least one ratio. A 30-percent shock to earnings and receivables raises this to 88 percent, of which 29 percentage points is vulnerable in terms of both indicators, a 230-percent increase compared with before to the pandemic. Firms in East Asia and Pacific, the Middle East and North Africa, and South Asia appear to be the most exposed. Some countries with vulnerable corporate sectors also display weaknesses in insolvency frameworks, which may impede restructurings and write-downs and contribute to a surge in socially inefficient liquidations of cash-strapped but otherwise viable firms. 2020-07-23T13:31:26Z 2020-07-23T13:31:26Z 2020-07 Working Paper http://documents.worldbank.org/curated/en/216811595260577407/COVID-19-and-EMDE-Corporate-Balance-Sheet-Vulnerabilities-A-Simple-Stress-Test-Approach http://hdl.handle.net/10986/34170 English Policy Research Working Paper;No. 9324 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	CORONAVIRUS COVID-19 PANDEMIC IMPACT EMERGING MARKET ECONOMIES CORPORATE VULNERABILITY DEBT CORPORATE PERFORMANCE ECONOMIC SHOCK DEBT DISTRESS
spellingShingle	CORONAVIRUS COVID-19 PANDEMIC IMPACT EMERGING MARKET ECONOMIES CORPORATE VULNERABILITY DEBT CORPORATE PERFORMANCE ECONOMIC SHOCK DEBT DISTRESS Feyen, Erik Dancausa, Fernando Gurhy, Bryan Nie, Owen COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
relation	Policy Research Working Paper;No. 9324
description	This paper conducts a simple stress test to gauge the ability of listed nonfinancial corporates to withstand shocks to earnings and receivables. It targets two basic accounting ratios that capture a firm’s ability to cover its short-term liabilities and interest expenses. The sample consists of almost 17,000 firms in 73 countries and represents US$22.1 trillion in total assets and US$6.05 trillion in total debt. The findings show that, prior to the pandemic, almost 60 percent of the debt was associated with firms that already exhibited vulnerabilities according to at least one ratio. A 30-percent shock to earnings and receivables raises this to 88 percent, of which 29 percentage points is vulnerable in terms of both indicators, a 230-percent increase compared with before to the pandemic. Firms in East Asia and Pacific, the Middle East and North Africa, and South Asia appear to be the most exposed. Some countries with vulnerable corporate sectors also display weaknesses in insolvency frameworks, which may impede restructurings and write-downs and contribute to a surge in socially inefficient liquidations of cash-strapped but otherwise viable firms.
format	Working Paper
author	Feyen, Erik Dancausa, Fernando Gurhy, Bryan Nie, Owen
author_facet	Feyen, Erik Dancausa, Fernando Gurhy, Bryan Nie, Owen
author_sort	Feyen, Erik
title	COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
title_short	COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
title_full	COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
title_fullStr	COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
title_full_unstemmed	COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach
title_sort	covid-19 and corporate balance sheet vulnerabilities : a simple stress-test approach
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/216811595260577407/COVID-19-and-EMDE-Corporate-Balance-Sheet-Vulnerabilities-A-Simple-Stress-Test-Approach http://hdl.handle.net/10986/34170
_version_	1764480389069406208

COVID-19 and Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach

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