Working Paper: NBER ID: w31216
Authors: Sergi Basco; Giulia Felice; Bruno Merlevede; Mart Mestieri
Abstract: This paper empirically examines the effects of financial crises on the organization of production of multinational enterprises. We construct a panel of European multinational networks from 2003 through 2015. We use as a financial shock the increase in risk premia between August 2007 and July 2012 and build a multinational-specific shock based on the network structure before the shock. Multinationals facing a larger financial shock perform worse in terms of revenue, employment, and growth in the number of affiliates. Lower growth in the number of affiliates operates through a negative effect on domestic and foreign affiliates, and is concentrated in affiliates in a vertical relationship with the parent. These effects built up slowly over time. Negative effects are driven by multinationals with initially more leveraged parents, who reduce relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity.
Keywords: financial crises; multinational enterprises; network structure; financial shocks
JEL Codes: F14; F23; F44; L22; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial shock (F65) | MNE performance (revenue) (L25) |
| Financial shock (F65) | MNE performance (employment) (E01) |
| Financial shock (F65) | growth in number of affiliates (O49) |
| Lower growth in number of affiliates (O49) | negative effects on domestic affiliates (F23) |
| Lower growth in number of affiliates (O49) | negative effects on foreign affiliates (F23) |
| Financial shock (F65) | adjustment in MNE network (vertical affiliates) (F23) |
| Higher leverage (G19) | reduction in number of foreign affiliates (F23) |
| Financial frictions (G19) | MNE behavior post-crisis (H12) |