Modern pandemic crises and default risk: Worldwide evidence

This article examines the relationship between modern health pandemic crises and financial stability. Specifically, it collects data on 250,223 firms in 43 countries (or regions) during five modern pandemic crises, SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016), and finds that pandemic crises significantly increase the default risk of enterprises. Further analysis shows that formal and informal institutions acted as a "cushion" against the pandemic crisis. The earlier a country adopts IFRS, the more unimpeded access to information, and the more stable religious and ethnic relations within the country can reduce the negative impact of a pandemic on financial stability. This article addresses the hitherto inadequacy of COVID-related data. In addition, this article argues that governments should build sound state institutions to withstand macroeconomic shocks and highlights the heterogeneity of default risk for enterprises operating in countries with different institutions.