Leverage and the global supply chain

Abstract

This study examines the effects of global supply chain pressures on firm leverage ratios. I find that firms have historically responded to global supply pressures by reducing the total debt ratio. However, during the extreme pressures of the COVID-19 pandemic, firms sharply increased short-term debt values while also reducing long-term debt. These results suggest that firms respond to moderate supply chain pressures by increasing their debt capacity, which is then utilized during unanticipated acute scenarios. Such findings emphasize the importance of global supply chain conditions as a discrete macroeconomic determinant of corporate policy.