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

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  • Zhang, Jiarui
  • Shi, Yingying
  • Li, Lei

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.

Suggested Citation

  • Zhang, Jiarui & Shi, Yingying & Li, Lei, 2025. "Corporate response to monetary policies: Do foreign subsidiaries and local firms behave differently?," Journal of International Money and Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000373
    DOI: 10.1016/j.jimonfin.2025.103302
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    More about this item

    Keywords

    Inward foreign direct investment; Monetary policy shocks; Internal capital market; Financial comparative advantage;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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