Corporate response to monetary policies: Do foreign subsidiaries and local firms behave differently?

Research output: Journal PublicationArticlepeer-review

Abstract

Multinational companies (MNCs) have greater financial flexibility than local firms because they can access the international capital market at a lower cost. This may help reduce the financial constraint of their subsidiaries and therefore their dependence on local credit conditions. In this paper, we show that subsidiaries of MNCs are less affected by local monetary contraction than domestic firms in terms of investment. This effect is pronounced when foreign share of the subsidiary increases (willingness to help), if the parent firm comes from a financially more developed country (ability to help), or if the subsidiaries are operating in financially vulnerable industries (need for help). We find evidences that MNCs move financial resources across borders through equity transfer or trade credit provision to help their subsidiaries during host country’ monetary contraction periods.

Original languageEnglish
Article number103302
JournalJournal of International Money and Finance
Volume154
DOIs
Publication statusPublished - Apr 2025

Keywords

  • Financial comparative advantage
  • Internal capital market
  • Inward foreign direct investment
  • Monetary policy shocks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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