IFS Seminar - Sarah Clifford (Oxford)

Abstract: In this paper we provide evidence of a tangible advantage of being a multinational corporation when weathering external shocks. We combine multiple sources of entity level panel data and compare the borrowing and lending patterns of affiliates of multinational enterprises to the patterns of fully domestic firms at the onset of a period of bank credit shortage. We first document that multinational affiliates have access to substantially more capital than similar domestic firms after a shock to domestic credit markets. Second, we show that part of this funding advantage comes from access to the group internal capital market of the multinational. Third, we show that two groups of affiliates in particular drive these differences: the ones that are likely financially constrained when the credit shock hits and the ones that appear especially profitable. One interpretation of these results is that MNEs direct capital to group-members that are in trouble as a result of less access to bank finance as well as supporting very profitable members to take over larger market shares following bank credit shortage in an area. This leads to a significant performance difference with multinational affiliates growing substantially faster than local firms after the external shock. We discuss policy implications of this multinational capital advantage.

Location: Zoom