The effects of macroeconomic uncertainty on corporate default risk: evidence from China

In this study, using a novel measure of provincial macroeconomic uncertainty in China, we examine the heterogeneous impacts of rising economic uncertainty on the default risk of private firms relative to state-owned enterprises (SOEs). We find that increasing macroeconomic uncertainty significantly raises the probability of default for private firms, while having little impact on SOEs. This relationship holds when using a matched sample of private firms and SOEs, controlling for multiple sets of fixed effects, and utilizing alternative measures of economic uncertainty. Additionally, the adverse impact of macroeconomic uncertainty on corporate default risk is more pronounced for private firms with severe financing constraints. Our analysis highlights deteriorating corporate performance and reduced access to external financing as key channels through which rising macroeconomic uncertainty disproportionately affects private firms.