Despite trillions of dollars of stimulus sloshing around and credit being funneled into the global economy, the COVID-19 pandemic is forcing countless businesses into bankruptcy. The weak are getting weaker, and the big are thrown lifelines. That divide will only grow wider.
The case of Japan, where insolvencies are rising sharply, shows that no matter how much cash you have, size matters more: Micro-enterprises across all sectors account for around 70 percent of companies going under, despite a large portion having net cash. Almost 60 percent of small companies in the benchmark Topix stock index are net cash, compared to around 40 percent of the larger ones. Overall, that’s much higher than global peers: The figures are 15.6 percent of S&P 500 non-financial companies, and around 23 percent of the MSCI Euro.
Bankruptcies at large Japanese companies have fallen. So it’s curious that risk-averse, mom-and-pop outfits sitting on cash are falling victim faster everywhere, not just where they make up a majority of firms, such as restaurants and small retailers.