Studying corporate liquidity and regulatory responses for economic recovery in COVID-19 crises

Lei Chang, Xiaojun Gan and Muhammad Mohsin

Economic Analysis and Policy, 2022, vol. 76, issue C, 211-225

Abstract: Many enterprises across the European Union (EU) have been hampered by the massive spread of COVID-19. It has severely impacted revenues and financial flows, potentially leading to an increase in corporate insolvency. This study investigates the influence of this new coronavirus on the solvency status of businesses in EU Member States. Several stress scenarios were constructed for non-financial listed enterprises. The results reveal a gradual surge in the possibility of default, a rise in loan repayment, and coverage being refused. According to our findings, the solvency profiles of all firms are deteriorating. Industries, such as mining, mass production, and retail, are the most susceptible to a drop in sales income and market capitalization. Before COVID-19, previous research had looked at policy options for maintaining solvency. Our data imply that a tax delay is adequate if there is a slight deterioration in the economic outlook. There should be hybrid assistance through loans and equity for even a slight deterioration in the state of an economy. This research will benefit policymakers, corporate executives, and creditors.

Keywords: Cash flows; EU; Novel coronavirus; Probability of default; Solvency (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:76:y:2022:i:c:p:211-225

DOI: 10.1016/j.eap.2022.07.004

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