Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/219390
Authors: 
Holtemöller, Oliver
Muradoglu, Yaz Gulnur
Year of Publication: 
2020
Series/Report no.: 
IWH Online No. 3/2020
Publisher: 
Leibniz-Institut für Wirtschaftsforschung Halle (IWH), Halle (Saale)
Abstract: 
This paper investigates the consequences of shutdowns during the Corona crisis on the risk of bankruptcy for firms in Germany and United Kingdom. We use financial statements from the period 2014 to 2018 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 high 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.
Document Type: 
Research Report

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