Data published by the Financial Times shows that in July 2020, the United Kingdom saw the lowest decrease in job postings, -55% compared to the same month in 2019.
As at July, job postings in France stood at -40%, in Italy at -35%, in Spain at -50% and -25% in Germany, compared to July 2019. In the United States, job postings for the United States tanked by 40% in April 2020 compared to the same month in 2019, then slowly recovered, but still stood at -20% as of July 2020.
In the United States, COVID-19 is being considered as the third major shock to have hit the US and the global economy in the first two decades of this century. First, we experienced the September 11, 2001, terror attacks, then the 2008–2009 Financial Crisis, and now the COVID-19 pandemic.
“Although, each of these crises confronted the global economy, and the financial system in particular, with different challenges, COVID-19 crisis is likely to be the worst,” according to the editorial of the recently published Review of Corporate Finance Studies.
“According to the World Bank (2020), the global economy is expected to shrink by 5.2% this year, representing the deepest global recession since the Second World War.”
“Besides the loss of human lives that continues to be horrific and the resurgence of the pandemic in many countries, the economic cost has also been severe. At the end of July 2020, it is estimated that gross domestic product (GDP) in the second quarter of 2020 fell by 9.5% in the United States, compared to the previous quarter, and by 10.1% in Germany.”
The November 2020 edition of the Review of Corporate Finance Studies features papers that are among the best of the early research written over the last few months, mostly treating the area of corporate finance, to mirror the impacts engendered by the pandemic.
“The pandemic has upended the cash flows of a large number of corporations in many countries, with certain segments being significantly more affected than others. Larger companies, the so-called “workhorses” of most of our empirical work in corporate finance, face significant headwinds, including financial distress in some cases. But medium-sized and smaller companies, which seldom feature in our empirical work, will have their very survival on the line, in part because of frictions on the financing side. Thus, the issue features work on both small and large, as well as private and public, firms,” states the publication’s editorial.
The issue is organized into three main themes. One set of papers considers the “dash for cash” by firms in the United States during the early part of the pandemic and describes how firms were able to raise substantial amounts of external financing at this time, both by drawing down lines of credit from banks and by accessing the public markets. Thus, in the early part of the crisis, financial institutions and markets (helped also by the strong intervention of the Federal Reserve Board) performed one of their key functions—allowing corporations to raise external capital—as well as we could have hoped for.
A second set of papers considers the impact of COVID-19 and the associated lockdown on the liquidity and equity positions of a large number of firms, including private firms, in Italy. Two main messages come through: when the immediate COVID-19 storm has been weathered, equity shortfalls and debt overhang will be major hurdles for firms in the longer term, and the issue of zombie financing is likely to become very relevant.
The third set of papers examines the corporate characteristics, both those related to firms’ balance sheets and their business models, that drove stock market reactions of firms in the early part of the pandemic. In this period, firms that were especially exposed to China significantly underperformed, whereas those with high ES (environmental and social) scores performed relatively well.
A final paper considers the intersection between corporate financing decisions and macroeconomics. The authors highlight some fruitful directions for future research in these areas, including the consideration of macroeconomic effects and related externalities in corporate bankruptcy procedures.
Photo People queue up at an unemployment office in Barcelona, Spain, 02 July 2020. EPA-EFE/MARTA PEREZ