“Multinational Firms and The International Transmission of Financial Crises: The Real Economy Channel” by Isil Erel
Ohio State University
University of British Columbia
This paper studies investment and employment at a subsidiary located in a non-crisis country if its parent firm also has a subsidiary in a crisis country. It finds that investment is about 25% lower in the subsidiaries of these parents relative to the same industry, same-country subsidiaries of multinational firms that do not have a subsidiary in a crisis country. Employment also shrinks by about 0.5% in the former while it increases by about 1.5% in the latter. These results hold controlling for subsidiary and parent size, parent cash flow, subsidiary country, industry, year, and parent country, as well as using alternative crisis definitions.