TY  - JOUR
AU  - Desai,Mihir A.
AU  - Foley,C. Fritz
AU  - Forbes,Kristin J.
TI  - Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10545
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10545
L1  - http://www.nber.org/papers/w10545.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Kristin Forbes
MIT Sloan School Room E52-455
50 Memorial Drive
Cambridge, MA  02142
Tel: 617/253-8996
Fax: 617/258-6855
E-Mail: kjforbes@mit.edu
AB  - This paper studies the effects of financial constraints on firm growth by investigating if large depreciations differentially impact multinational affiliates and local firms in emerging markets. U.S. multinational affiliates increase sales, assets and investment significantly more than local firms during, and subsequent to, currency crises. The enhanced relative performance of multinationals is traced to their ability to use internal capital markets to capitalize on the competitiveness benefits of large depreciations. Investment specifications indicate that increases in leverage resulting from sharp depreciations constrain local firms from capitalizing on these investment opportunities, but do not constrain multinational affiliates. Multinational parents also infuse new capital in their affiliates after currency crises. 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.
ER  -