Financial Crises and the Global Supply Network: Evidence from Multinational Enterprises

Sergi Basco, Giulia Felice (), Bruno Merlevede and Martí Mestieri

No WP 2023-24, Working Paper Series from Federal Reserve Bank of Chicago

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 adjust to the financial shock by reducing relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity.

Keywords: global financial crisis; Vertical integration (search for similar items in EconPapers)
JEL-codes: F14 F23 F44 L22 L23 (search for similar items in EconPapers)
Pages: 36
Date: 2023-04
New Economics Papers: this item is included in nep-int and nep-opm
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Financial crises and the global supply network: Evidence from multinational enterprises (2024)
Working Paper: Financial Crises and the Global Supply Network: Evidence from Multinational Enterprises (2023)
Working Paper: Financial Crises and the Global Supply Network: Evidence from Multinational Enterprises (2023)
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