Using a panel of credit default swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are –36 and –38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains and is amplified if supply chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply chain tiers for adverse shocks but attenuates for favorable shocks. This paper was accepted by Kay Giesecke, finance.

While global supply chains provide firms with a buffer against local shocks, they expose firms to multiregional risks. The COVID‐19 pandemic and its differential impact on different regions in the world offer an opportunity to explore these effects. We investigate the multiregional supply chain risk by focusing on credit risk measured by abnormal credit default swaps (CDS) spreads and US–China supply chain networks. Our evidence shows that local risks propagate through global supply chains to other regions. Using a matched sample, we find that abnormal CDS spreads for firms with Chinese supply chain partners increase by 12% to 13% relative to the average raw CDS spreads due to supply chain disruptions during the economic shutdown in China, and the abnormal CDS spreads decrease by 9% to 13% relative to the average raw CDS spreads when the supply chain activities resume in China. We also find that having a more global customer base can mitigate the effects of local household demand shocks. Lastly, we discover that firm size, supply chain network centrality, cash holdings, inventory, strong credit ratings, capital redeployability, and the number of segments increase resilience to global supply chain shocks, while financial leverage, operational leverage, and market competition weaken supply chain resilience.

We examine whether internal funds matter for investment when the measurement error inqis addressed. By carefully employing methodologies that tackle the measurement error inq, we show that cash flow is a significant determinant of investment. We also find that an analyst-forecast-basedqmeasure is not superior to a stock-market-basedqmeasure. We further propose an approach that uses two alternative proxies ofqas instruments for addressing measurement error. Our evidence indicates that instrumental-variables-type generalized method of moments estimators yield empirically well-specified models.