The spillover effect occurs through two channels: a reduction in trade credit offered and a reduction in the total supply of goods and services.
After exposure to the spillover, downstream customers show a spike in credit risk and a reduction in employment..
Credit risk spillovers and the likelihood of financial distress.
This table presents the results of multivariate logit and OLS regressions that examine whether the proposed measures of credit risk spillovers are related to the probability of becoming financially distressed.
Cross-sectional results We use several cross-sectional tests to dissect the relation between cash holdings and credit risk spillovers.
Intuitively, financially weaker firms and firms in highly competitive industries are more likely to suffer from the credit risk contagion effect.
Thus,credit risk spillovers have a substantial influence on corporate payout policies.
These findings further support our earlier results that high CRC firms tend to build up cash savings and adopt more conservative financial policies, while high PMR firms seem to take a more relaxed approach. 5.4.
Robustness checks .
Still, the intra-industry credit risk spillover measureshave incremental explanatory power in determining corporate cash reserves in the presence of these control variables. 5.1.1.
Cross-sectional results We use several cross-sectional tests to dissect the relation between cash holdings and credit risk spillovers.
