COVID-19 Pandemic and Global Corporate CDS Spreads

Abstract

We examine the impact of the COVID-19 pandemic on the credit risk of companies around the world. We find that the pandemic-induced increases in corporate CDS spreads are concentrated in firms with higher leverage, non-investment-grade rating, lower profitability, and higher stock volatility. Further analysis shows that increases in CDS spreads are smaller for firms with employee health policies in place, better corporate social responsibility performance, stronger corporate governance, and operating in industries less affected by social distancing. Lastly, our results reveal that the successful vaccine trials and national policies including income support packages, lockdown policies and health policies help to reduce corporate CDS spreads.