Abstract

http://ssrn.com/abstract=548782
 
 

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


Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley


Harvard Business School; National Bureau of Economic Research (NBER)

Kristin J. Forbes


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Bank of England - Monetary Policy Committee

June 2006

EFA 2004 MAASTRICHT

Abstract:     
This paper examines how financial constraints and product market exposures determine the response of multinational and local firms to sharp depreciations. U.S. multinational affiliates increase sales, assets, and investment significantly more than local firms during, and subsequent to, depreciations. Differing product market exposures do not explain these differences in performance. Instead, a differential ability to circumvent financial constraints is a significant determinant of the observed differences in investment responses. Multinational affiliates also access parent equity when local firms are most constrained. These results indicate another role for foreign direct investment in emerging markets—multinational affiliates expand economic activity during currency crises when local firms are most constrained.

Number of Pages in PDF File: 42

Keywords: Investment, leverage, foreign direct investment, currency crises, financial constraints, depreciations

JEL Classification: F23, F31, G15, G31, G32


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Date posted: June 15, 2004  

Suggested Citation

Desai, Mihir A. and Foley, C. Fritz and Forbes, Kristin J., Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations (June 2006). EFA 2004 MAASTRICHT. Available at SSRN: http://ssrn.com/abstract=548782 or http://dx.doi.org/10.2139/ssrn.548782

Contact Information

Mihir A. Desai (Contact Author)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
C. Fritz Foley
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Kristin J. Forbes
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Room E62-416
Cambridge, MA 02142
United States
617-253-8996 (Phone)
HOME PAGE: http://web.mit.edu/kjforbes/www
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Bank of England - Monetary Policy Committee ( email )
Threadneedle Street
London EC2R 8AH
United Kingdom
Feedback to SSRN


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