Publications
Publications
- November 2008
- Review of Financial Studies
Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises
By: Mihir A. Desai, C. Fritz Foley and Kristin Forbes
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.
Keywords
Economic Growth; Financial Crisis; Currency; Private Equity; Foreign Direct Investment; Multinational Firms and Management; Emerging Markets; United States
Citation
Desai, Mihir A., C. Fritz Foley, and Kristin Forbes. "Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises." Review of Financial Studies 21, no. 6 (November 2008).