The COVID-19 pandemic and efforts to combat its spread were an unprecedented shock to corporate cash flows and consequent need for external financing. How did corporate leverage respond? More important, what does the impact on leverage mean for financial stability? In the U.S., firms that were most affected by the pandemic, in terms of drop in demand, are likely facing a debt overhang problem and increased risk of default. We document these recent patterns on corporate leverage and financial fragility in our recent paper, which uses a dataset of about 3,000 U.S. public companies.
Controlling for the effects on … Read more