Journal of Financial and Quantitative Analysis 2026
Inflation and Corporate Credit Risk: Global Evidence
Abstract
We provide novel international evidence that inflation is positively associated with corporate credit risk on average. A 1-standard-deviation increase in inflation is associated with a 21-basis-point increase in next-year credit default swap spreads. Importantly, this relationship is convex: it is negative or weak at low inflation levels but much more positive in high-inflation environments. The positive relation between inflation and credit risk is stronger for firms with greater refinancing vulnerability and more rigid operating cash flows, and in countries with more inflation-responsive monetary regimes and weaker institutional environments. Our findings are consistent with opposing roles for debt rigidity and operating rigidity.
- DOI
- 10.1017/s0022109026103305
- Pages
- 1-104
- Language
- en
- Sources
- crossref openalex