The International Propagation of Economic Downturns Through Multinational Companies: The Real Economy Channel

105 Pages Posted: 28 Sep 2020 Last revised: 28 Feb 2021

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Serdar Dinc

Rutgers University

Isil Erel

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Date Written: September 2020

Abstract

We study how non-financial multinational companies propagate economic declines from their subsidiaries located in countries experiencing an economic downturn to subsidiaries in countries not experiencing one. We find that investment is 18% lower in subsidiaries of these parents relative to the same-industry, same-country subsidiaries of parents that are headquartered in the same parent country but do not have a subsidiary in a country experiencing an economic downturn. The employment growth rate in the affected subsidiaries is zero or negative while it is 1.4% in the subsidiaries of unaffected parents. The aggregate industry-level sales and employment are also negatively impacted in the countries of the affected subsidiaries.

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Suggested Citation

Bena, Jan and Dinc, Serdar and Erel, Isil, The International Propagation of Economic Downturns Through Multinational Companies: The Real Economy Channel (September 2020). NBER Working Paper No. w27873, Available at SSRN: https://ssrn.com/abstract=3700701

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Serdar Dinc

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