Corporate Liquidity in Coronacrisis: Experience of Serbian Economy

Abstract

The appearance of coronavirus in the spring of 2020 has significantly revalued risk exposures in the business environment, which required new approaches in the measurement of financial risks. This paper defines and explains a new approach to the measurement of liquidity risk in companies in a time of an economic crisis. This approach is more responsive to stressful circumstances in the business environment and measures the time in an economic crisis when a company can still pay maturing liabilities out of its own inventory of liquid assets, where sales of a company on the market are limited or completely prohibited, as this was the case for some industries during the first wave of Covid -19 in spring 2020. The objective of this paper was to define a new metric for the measurement of corporate liquidity, which is sensitive to this environment and shows the propensity of a company to the risk of illiquidity if an economic crisis appears. This paper, in the next step, leverages the newly defined metric of corporate liquidity and calculates the average liquidity of all companies, as well as the average liquidity by business sectors in the Serbian economy, to discuss corporate liquidity in a crisis. The results show that the average liquidity of the Serbian economy in crisis at the end of 3Q 2020 was 78,02 days, i.e., the average company in the Serbian economy was able to survive 78,02 days in stress by the end of 3Q 2020 if its sales on the market were prohibited.Implications for Central European audience: The model in this paper is in the interest of every company and bank to measure the liquidity risk of business partners in times of an economic crisis and to predict which business partners may have liquidity problems in crisis and may therefore not be able to pay their open liabilities. The contribution of this paper to liquidity risk measurement in companies in times of stress is high as the currently available literature does not offer an alternative approach.