Corporate Liquidity and Solvency in Europe during COVID-19: The Role of Policies

Christian Ebeke, Nemanja Jovanovic, Laura Valderrama and Jing Zhou

No 2021/056, IMF Working Papers from International Monetary Fund

Abstract: The spread of COVID-19, containment measures, and general uncertainty led to a sharp reduction in activity in the first half of 2020. Europe was hit particularly hard—the economic contraction in 2020 is estimated to have been among the largest in the world—with potentially severe repercussions on its nonfinancial corporations. A wave of corporate bankruptcies would generate mass unemployment, and a loss of productive capacity and firm-specific human capital. With many SMEs in Europe relying primarily on the banking sector for external finance, stress in the corporate sector could easily translate into pressures in the banking system (Aiyar et al., forthcoming).

Keywords: corporate vulnerability; solvency risk; liquidity risk; policy effectiveness; WP; cash flow; illiquid firm; firm level; management action; insolvent firm; liquidity deficit (search for similar items in EconPapers)
Pages: 48
Date: 2021-03-02
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