International Evidence on Firm Level Decisions in Response to the Crisis: Shareholders vs. Other Stakeholders

44 Pages Posted: 6 Jan 2018 Last revised: 1 Apr 2018

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Elena Carletti

Bocconi University

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

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Date Written: February 1, 2018

Abstract

The relationship between changes in GDP and unemployment during the 2008 financial crisis differed significantly from previous experiences and across countries. We study firm-level decisions in France, Germany, Japan, the UK, and the US. We find significant differences between the response of US and non-US firms. US firms significantly decreased their production costs relative to firms in other countries. They have also reduced debt, reduced dividend payout, and increased their cash holdings compared to firms in other countries. The differences are, in general, explained by differences in financial leverage. However, financial leverage does not explain differences between production decisions in German and U.S. firms and between Japanese and US firms. We argue that differences in firm governance between US firms and firms in Germany and Japan drive these responses. US firms are more prone to cut labor costs and reduce leverage compared to German firms and Japanese firms in order to achieve larger profits and a larger cash-cushion in the short-run.

Keywords: Okun’s Law, Corporate Governance, Firm-Level Decisions

JEL Classification: E30, G01, G32, G34

Suggested Citation

Allen, Franklin and Carletti, Elena and Grinstein, Yaniv, International Evidence on Firm Level Decisions in Response to the Crisis: Shareholders vs. Other Stakeholders (February 1, 2018). Journal of Japanese and International Economies, Vol. 47, No. 1, 2018; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 545/2018. Available at SSRN: https://ssrn.com/abstract=3096530 or http://dx.doi.org/10.2139/ssrn.3096530

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Elena Carletti

Bocconi University

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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