Multinational Firms and the International Transmission of Crises: The Real Economy Channel

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 18% 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. Net new hiring of employees in these subsidiaries is also lower in these subsidiaries. These results hold for the parents that are unlikely financially constrained and are robust to controlling for subsidiary and parent size, parent cash flow, subsidiary country, industry, year, and parent country, as well as using alternative crisis definitions.