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Did the Euro Crisis Affect Non-Financial Firm Stock Prices Through a Financial or Trade Channel?

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  • International Monetary Fund

Abstract

This paper analyzes through what channels the euro crisis has affected firm valuations globally. It examines stock price responses over the past year for 3045 non-financial firms in 16 countries to three key crisis events. Using pre-crisis benchmarks, it separates effects arising from changes in external financing and trade conditions and examines how bank and trade linkages propagated effects across borders. It finds that policy measures announced impacted financially-constrained firms more, particularly in creditor countries with greater bank exposure to peripheral euro countries. Trade linkages with peripheral countries also played a role, with euro exchange rate movements causing differential effects.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/227.

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Length: 40
Date of creation: 01 Sep 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/227

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Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
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Web page: http://www.imf.org/external/pubind.htm
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Keywords: Corporate sector; Sovereign debt; Spillovers; Stock prices; bank exposure; financial dependence; stock price; banking; stock returns; stock price index; financial markets; banking system; banking sector; banking systems; stock market; bond; cash flow; stock market indexes; sovereign risk; financial stability; currency risk; sovereign bond; international capital; bonds; corporate valuation; government bonds; financial corporations; financial sector; bank of international settlements; bank claims; working capital; bank of international settlements (bis); bond yield; government bond; equity markets; international capital markets; bank lending; cash flow from operations; corporate valuations; bank data; stock price performance; access to international capital; banks ? balance sheets; bank credit; stock markets; firm valuations; bond market; bond spreads; international finance; stock indexes; equity market;

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References

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  1. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
  2. Carlos Arteta & Galina Hale, 2006. "Sovereign debt crises and credit to the private sector," Working Paper Series 2006-21, Federal Reserve Bank of San Francisco.
  3. Kristian Behrens & Giordano Mion, 2010. "Trade crisis? What trade crisis?," LSE Research Online Documents on Economics 48910, London School of Economics and Political Science, LSE Library.
  4. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "The great trade collapse of 2008-2009: an inventory adjustment?," Working Papers 10-18, Federal Reserve Bank of Philadelphia.
  5. Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market?," Economic Policy, CEPR & CES & MSH, vol. 24, pages 191-240, 04.
  6. Logan Lewis & Linda Tesar & Andrei Levchenko, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," 2010 Meeting Papers 109, Society for Economic Dynamics.
  7. Eduardo Borensztein & Patricio Valenzuela & Kevin Cowan, 2007. "Sovereign Ceilings "Lite"? T+L3712he Impact of Sovereign Ratingson Corporate Ratings in Emerging Market Economies," IMF Working Papers 07/75, International Monetary Fund.
  8. Rudolfs Bems & Robert C Johnson & Kei-Mu Yi, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 295-326, December.
  9. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers 107, Society for Economic Dynamics.
  10. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
  11. Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2012. "How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads," Working papers 21, National Bank of Serbia.
  12. Bekaert, Geert & Ehrmann, Michael & Fratzscher, Marcel & Mehl, Arnaud, 2011. "Global crises and equity market contagion," CEPR Discussion Papers 8438, C.E.P.R. Discussion Papers.
  13. Ferri, Giovanni & Liu, Li-Gang & Majnoni, Giovanni, 2001. "The role of rating agency assessments in less developed countries: Impact of the proposed Basel guidelines," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 115-148, January.
  14. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2003. "The Euro and Corporate Valuations," Working Paper Series in Economics and Finance 525, Stockholm School of Economics, revised 06 Dec 2003.
  15. Stijn Claessens & Hui Tong & Shang-Jin Wei, 2011. "From the Financial Crisis to the Real Economy: Using Firm-level Data to Identify Transmission Channels," NBER Working Papers 17360, National Bureau of Economic Research, Inc.
  16. Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
  17. Stijn Claessens & Luc Laeven & Deniz Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications From the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
  18. Giordano Mion, 2011. "Trade crisis - what trade crisis?," CentrePiece - The Magazine for Economic Performance 336, Centre for Economic Performance, LSE.
  19. Ashoka Mody, 2009. "From Bear Stearns to Anglo Irish," IMF Working Papers 09/108, International Monetary Fund.
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Cited by:
  1. Beetsma, Roel & Mavromatis, Konstantinos, 2012. "An Analysis of Eurobonds," CEPR Discussion Papers 9244, C.E.P.R. Discussion Papers.

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