IMF Working Papers

Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses

By Thierry Tressel, Xiaodan Ding

August 6, 2021

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Thierry Tressel, and Xiaodan Ding. Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.

Subject: Asset and liability management, COVID-19, Currencies, Financial sector policy and analysis, Financial statements, Health, Liquidity, Money, Public financial management (PFM), Stress testing

Keywords: A. firm Level vulnerability indicator, Africa, Corporate sector vulnerabilities, COVID-19, Covid-19 pandemic, Currencies, Debt restructuring, Debt share, Financial statements, Global, Liquidity, Liquidity support policy, Pandemic shock, Share of sample, Solvency and liquidity support policies., Stress testing, Stress tests, Viability of firms

Publication Details

  • Pages:

    54

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2021/212

  • Stock No:

    WPIEA2021212

  • ISBN:

    9781513590820

  • ISSN:

    1018-5941