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School of Business and Management

Corona Shutdown and Bankruptcy Risk

When: Friday, November 20, 2020, 12:00 PM - 1:00 PM
Where: Online Event

Speaker: Oliver Holtemöller and Gulnur Muradoglu

This event is part of the Behavioural Finance Seminars on Corona Crisis: Online series by Professor Yaz Gulnur Muradoglu. This paper investigates the consequences of shutdowns during the Corona crisis on the risk of bankruptcy for unlisted and listed firms in Germany and United Kingdom.

Authors: Oliver Holtemöller (Martin-Luther-University and IWH) and Gulnur Muradoglu (Queen Mary University of London)

Abstract: We use Amadeus data to predict how pervasive risk of bankruptcy becomes for micro, small, medium, and large firms due to shutdown measures. We estimate distress for firms using their capacity to service their debt. Our results indicate that under three months of shutdown almost all firms in shutdown industries face risk of bankruptcy. In Germany, about 99% of firms in shutdown industries and in the UK about 98% of firms in shutdown industries are predicted to be under distress. The furlough schemes reduce the risk of bankruptcy only marginally to 97% of firms in shutdown industries in Germany and 95% of firms in shutdown industries in the United Kingdom in case of a three-month shutdown. In sectors that are not shutdown under conservative estimates of contagion of sales losses, our results indicate considerable risk of widespread bankruptcies ranging from 76% of firms in Germany to 69% of firms in the United Kingdom. These early findings suggest that the impact of corona crisis on corporate sector via shutdowns can be severe and subsequent policy should be designed accordingly.

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