THE COVID-19 pandemic has exacerbated existing structural weaknesses in the corporate sector and capital markets. Without an effective policy response, the number of undercapitalised and underperforming firms will likely rise and remain high, while an increasing amount of productive resources will be tied up in non-viable companies, dragging down investment and economic growth, according to a new OECD report.

The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis says that substantial financial resources will be needed for investment both to support the recovery from the COVID-19 crisis and to further strengthen resilience to possible future shocks. Strengthening corporate governance policies and frameworks will help both existing and new companies access the capital they need.

“Good corporate governance and well-functioning capital markets play a crucial role in supporting the recovery of our economies coming out of the COVID-19 crisis,” OECD Secretary-General Mathias Cormann said, launching the report in Rome with Italy’s Minister of Economy and Finance, Daniele Franco. “They also help to make the business sector more dynamic, competitive and resilient to possible future shocks, including through more effectivemanagement of environmental, social and governance risks. The global reach and review of the G20/OECD Principles of Corporate Governance will be important in meeting these objectives.”

The bond market continued to be a significant source of capital for non-financial companies following the outbreak of the crisis, according to the report. In 2020, non-financial companies issued a historical amount of USD 2.9 trillion of corporate bond debt. As a result, the volume of outstanding corporate bond debt reached an all-time high in real terms of almost USD 15 trillion at the end of 2020. 

The quality of the outstanding stock of corporate debt has been falling. Between 2018 and 2020, the portion of BBB rated bonds – the lowest investment grade rating – accounted for 52% of all investment grade issuance. Between 2000 and 2007, that share was just 39%. Globally, debt has also accumulated mainly in businesses with lower debt servicing capacity. 

While the stock market provided record amounts of capital money to established companies in 2020, it has not provided sufficient support to new companies. Since 2005, more than 30,000 companies have delisted from stock markets globally, equivalent to 75% of all listed companies today. These delistings have not been matched by new listings, leading to a major reduction of publicly listed companies. As a result, significantly fewer companies are using public equity markets and a large portion of the money raised in 2020 went to fewer and larger companies. 

A strong corporate governance framework is essential for a well-functioning capital market. To tackle challenges posed by the crisis, the report highlights four priorities for policy makers:

• Adapt the corporate governance framework to address some of the weaknesses revealed by the pandemic, such as the management of health, supply chain and environmental risks, as well as issues related to audit quality, increased ownership concentration and complex company group structures. 

• Facilitate access to equity markets for sound businesses. This will help strengthen the balance sheets of viable corporations and the emergence of new business models that are essential for a sustainable recovery and long-term resilience. 

• Improve the management of environmental, social and governance risks, notably by developing comprehensive frameworks for producing consistent, comparable, and reliable climate-related disclosure. 

• Ensure insolvency frameworks support recovery and resilience. Fit-for-purpose insolvency regimes that are coherent across jurisdictions will be essential.