Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations

Desai, Mihir A.; Foley, C. Fritz; Forbes, Kristin J.

doi:10.1093/rfs/hhm017

Cited by 267 publications

(143 citation statements)

References 68 publications

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“…As measured by the employment development since the initial year of observation and controlling for physical capital endowment and labour costs, the bulk of results indicate a more positive trend for Germanowned firms. Thus, in summary it can be stated that our findings for the German-Czech case rather support the view of MNEs as stabilizers for the economy during a downturn (Alfaro and Chen, 2012;Desai et al, 2008;Tong and Wei, 2011). This may be due to a generally higher resilience of multinationals to global demand shocks.…”

Section: Discussioncontrasting

confidence: 55%

“…Some studies conclude that MNEs act as stabilizers in economic downturns (e.g. Alfaro and Chen, 2012;Desai et al, 2008;Tong and Wei, 2011). In this group of investigations the employment development of multinational firms is found to be more robust in times of economic crisis compared to domestic firms, which is attributed to cross-border input-output relationships between headquarters in the home country of FDI and affiliates in the host countries and greater financial independence through intra-firm financial linkages.…”

Section: Theoretical and Empirical Backgroundmentioning

confidence: 99%

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Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

Moritz¹,

Stockinger²,

Trepesch³

2017

Prague Economic Papers

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This article investigates the employment development in Czech-based firms in German ownership in the years around the Great Recession of 2008/2009. The intense involvement of German firms in the economy of the neighbouring country via foreign direct investment (FDI) raises a question whether under the conditions of a historically deep global downturn, the Czech employees in multinational companies were confronted with an increased volatility of their jobs. Using a unique firm-level dataset, we contrast the affiliates of German investors with purely Czechowned enterprises. Our findings indicate that in the years before the crisis, firms with German capital exhibited a noticeably more positive employment development. The results from the year 2008 onwards give reason to the conclusion that the German-owned firms played a stabilizing role for the Czech labour market during the recession.

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Section: Discussioncontrasting

confidence: 55%

Section: Theoretical and Empirical Backgroundmentioning

confidence: 99%

Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

Moritz¹,

Stockinger²,

Trepesch³

2017

Prague Economic Papers

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“…In particular, multinationals can access internal sources of capital when local external capital is scarce. Desai et al (2008) empirically analyze the effects of large currency depreciations on multinational and local manufacturers that produce tradable goods in emerging markets. Following depreciations, the affiliates of US multinationals increase sales, assets, and investment more quickly and by greater amounts than local firms.…”

Section: Crisesmentioning

confidence: 99%

“…While the growth of local firms' assets falls in the aftermath of such crises, the growth of foreign subsidiaries' assets accelerates. Desai et al (2008) document that these differential responses reflect the ability of multinational affiliates to access capital provided by their corporate parents.…”

Section: Introductionmentioning

confidence: 96%

International Trade, Multinational Activity, and Corporate Finance

2015

Self Cite

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An emerging new literature brings unique ideas from corporate finance to the study of international trade and investment. Insights about differences in the development of financial institutions across countries, the role of financial constraints, and the use of internal capital markets are proving central in understanding international economics. The ability to access financial capital to pay fixed and variable costs affects choices firms make regarding export entry and operations, and, as a consequence, influence aggregate trade patterns. Financial frictions and the use of internal capital markets shape decisions that multinationals make regarding production locations, integration, and corporate governance. This article surveys this recent research with the goal of highlighting the main themes it explores, the key results it establishes, and the leading open questions it raises.

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“…So if they stay in the country they might have a stabilizing effect on the economy paralyzed by the credit crunch, as discussed by Desai, Foley, and Forbes (2008). Twenty-five emerging markets were studied, 15 of which experienced deprecation episode during the period of 1994À1998.…”

Section: Mncs Risk Management In Their Subsidiaries In the Emerging Mmentioning

confidence: 99%

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

Starnawska¹

2015

Beyond the UN Global Compact: Institutions and Regulations

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. ABSTRACTPurpose À The UN Global Compact promotes values of precautionary approach to environmental changes and business sustainability, which are eagerly embraced by MNCs; however the recognized emerging country risks pose a challenge for continuous commitment to those principles in the subsidiaries. Especially political and currency risks are considered significant in the subsidiaries located in the emerging markets. Therefore, those risks are often shifted to the local partners as the pursued core principle of the risk management strategies. The objective of MNCs is in fact to limit MNCs responsibility for the liabilities and losses in the emerging markets in case of market downturns, and in effect the advocated risk management practices exacerbate the severity of the emerging market crises.Methodology/approach À The chapter explores those corporate practices on the examples of numerous major international market players in case of several historical, but recent examples of the emerging market currency crises.Findings À The concerns addressed in the chapter include: the preference for local financing exposing at risk local banking sectors in the emerging markets, excessive liquidity and minimal capital commitments and investments leading to weaker currency fluctuations and resulting in private capital speculations and capital flight (to safety or to quality). The intensified global competition for international investments in form of FDIs resulted in the erosion of the capital requirements, reduced social and business infrastructure commitments requested, limited currency controls, and other components of the regulatory framework easing in the emerging markets. Other identified in the research key components of the risk management strategies applied by MNCs, destabilizing the emerging markets in financial (both fiscal and currency) crises include: intercompany payments and financing such as: transfer pricing, local sourcing and reimbursements for both tangible and intangible assets transfer.Implications À Demonstrated approach of MNCs appears ethically questionable and reflects the disparity of the bargaining powers. It also undermines the intentions of the Ten Principles of the UN G...

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Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations

Cited by 267 publications

References 68 publications

Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

International Trade, Multinational Activity, and Corporate Finance

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

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