Job Market Paper
Causal Evidence on the International Transmission of Crises Through Multinational Firms(with Kilian Huber)
We study whether multinational corporations transmit the effects of a localized banking crisis to countries all over the world. We identify an exogenous shock to the credit supply of multinational parent corporations located in Germany. The shock to parents caused a reduction in the sales of their international affiliates for three years. We use unique data on linkages between parents and affiliates to study the transmission mechanism from parents’ credit supply to affiliates’ sales. Both financial and real channels played a role: Parents withdrew equity from their affiliates, reduced intra-firm trade with affiliates, and required more long-term lending from the affiliates. The results improve our understanding of the internal operations of multinational firms and suggest that multinationals contribute to global business cycle synchronization.