The Flight Home Effect in Multinational Internal Capital Markets During the Great Recession

37 Pages Posted: 29 May 2017

See all articles by Marc Deloof

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Fabiola Montalto

University of Antwerp

Date Written: May 29, 2017

Abstract

We investigate whether the Great Recession induced a “flight home” effect in internal capital markets of European multinational firms. Using a difference-in-difference approach, we find a significant reduction in group borrowings by subsidiaries of European multinationals in Italy since 2008, compared to a propensity score matched sample of subsidiaries of local business groups. While the reduction in group borrowings by multinational subsidiaries is partially counterbalanced by an increase in bank borrowings, multinational subsidiaries reduced their investments more than local group subsidiaries. These effects are significantly stronger for subsidiaries of multinationals headquartered in a European country that has been hit harder by the Great Recession. The reduction in group borrowings is larger when the foreign parent is located at a greater distance from subsidiary.

Keywords: Internal capital markets, flight home effect, multinational firms, Great Recession, Italy

JEL Classification: F23, G01, G31, G32

Suggested Citation

Deloof, Marc and Montalto, Fabiola, The Flight Home Effect in Multinational Internal Capital Markets During the Great Recession (May 29, 2017). Paris December 2017 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=2976257 or http://dx.doi.org/10.2139/ssrn.2976257

Marc Deloof (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Fabiola Montalto

University of Antwerp ( email )

Prinsstraat 13
Antwerp, Antwerp 2000
Belgium

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