(Not So) Easy Come, (Still) Easy Go? Footloose Multinationals Revisited

Blanchard, Pierre; Dhyne, Emmanuël; Fuss, Catherine; Mathieu, Claude

doi:10.1111/twec.12301

Cited by 6 publications

(7 citation statements)

References 48 publications

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“…With respect to plant dynamics, extensive literature has focused on the footloose nature of multinationals, and highlighted the fact that MNFs have a higher propensity to close plants and exit the domestic market than national firms with comparable characteristics (see, e.g. Bernard and Sjöholm, 2003;Görg and Strobl, 2003;Bernard and Jensen, 2007;Alvarez and Görg, 2009;and, for Belgium, Van Beveren, 2007;Blanchard et al, 2012). Firm exit is an abrupt and definitive event that may imply massive job losses.…”

Section: Introductionmentioning

confidence: 99%

Labour Demand Adjustment: Does Foreign Ownership Matter?

2015

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This paper examines whether multinationals differ in their employment adjustment from domestic companies, using a panel of 5,544 Belgian firms observed between 1998 and 2005. More precisely, we estimate labour adjustment costs by worker and firm types. We propose a new flexible specification that takes into account the role of firm size in adjustment costs. Our results indicate that adjusting white-collar employment is around half as costly for multinational firms (MNFs) as for domestic firms of the same size. The remaining differential in adjustment costs between MNFs and domestic firms might result, among other things, from multinationals' stronger bargaining power.

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Section: Introductionmentioning

confidence: 99%

Labour Demand Adjustment: Does Foreign Ownership Matter?

2015

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“…However, we must be aware that some of these variables may be endogeneous, being jointly determined with firm hazard rates and correlated with the error term. According to prior literature, firm size and firm performance are the main regressors potentially suffering from endogeneity problems (see, for instance, Blanchard, Dhyne, Fuss, & Mathieu, 2012). In other words, there may be unobservable factors that affect firm hazard rates and that also impact on these variables.…”

Section: Firm and Industry-level Determinants Of Firm Survivalmentioning

confidence: 99%

“…Consequently, results are reliable under the assumption of instrument validity, which, so far, cannot be tested in this type of models. Even so, the use of lagged values of endogeneous covariates as instruments is a common -and less compromisingpractice (e.g., Blanchard et al, 2012;Girma & Gong, 2008;Haskel, Pereira, & Slaughter, 2007;Wang, 2013), thus offering a satisfactory alternative when the suitability of instruments is not testable.…”

Section: Endogeneity Issues and Robustness Checksmentioning

confidence: 99%

“…2 A less conventional approach is also explored by Hyytinen and Ilmakunnas (2007) and Blanchard et al (2012). They include the residual from the first step estimation in the original model and test the significance of the coefficient of that residual.…”

Section: Endogeneity Issues and Robustness Checksmentioning

confidence: 99%

“…Prior procedures found in similar literature typically follow one of the two most common practices: either (1) use the lagged terms of the endogeneous variables instead of their current values, assuming that contemporaneous values are affected by their lags, while these lagged terms do not correlate (or are, at least, much less correlated) with the error term (e.g., Wang, 2013); or (2) follow the typical IV methods adopted in linear models, by regressing the endogeneous variable(s) on a set of exogeneous variables -that include the exogeneous variables from the main model and additional instruments (typically, the lagged value(s) of the endogeneous variable(s)), and then introducing the fitted value of the endogeneous variable(s) from this first-step regression(s) in the original model (e.g., Bandick & Gö rg, 2010;Blanchard et al, 2012). 2 Due to the identified limitations, we analyze the endogeneity of firm size and performance in an exploratory manner, using the two aforementioned alternatives.…”

Section: Endogeneity Issues and Robustness Checksmentioning

confidence: 99%

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Economic slowdowns, hazard rates and foreign ownership

Varum¹,

Rocha²,

Silva³

2014

International Business Review

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This paper evaluates the link between foreign ownership and firm exit during crises, using a longitudinal micro dataset over an 18-year period. We address two main questions: first, if foreign affiliates have different failure rates than domestic firms during economic downturns, and second if the foreignness effect differs between two different economic downturns. The results partially confirm the liability of foreignness argument, suggesting that when the crisis was more pronounced at home than abroad, the differences in hazard rates between foreign and domestic firms reduce. The footloose argument is also only partially confirmed. For policy makers, our results on survival dynamics during crises are not against policies stimulating inward investment. There is no need to fear that foreign firms destabilize more than usual the host economy during economic slowdowns by immediately closing down operations.ß 2013 Elsevier Ltd. All rights reserved. Author's personal copy downturns because foreign firms hold some sort of ownership advantages over domestic ones. Foreign multinationals may have better conditions to face the crises owing to their multinationality advantages or they may resist more due to the sunk costs associated with their investment (Chung, Lu, & Beamish, 2008;Desai, Foley, & Forbes, 2004;Ghosal, 2010). Studies about the importance of foreign ownership during crises are relatively scarce, the notable exceptions being the studies by Á lvarez and Gö rg (2009), Lee and Makhija (2009) and Varum and Rocha (2011). Hence, in this paper we use longitudinal firm-level data for a large time span to assess, first, whether foreign ownership contributes to differentiating the incidence of firm exit during crises, controlling for other determinants that may affect the exit risk of firms. We use discrete time hazard models that account for firm-level unobserved heterogeneity to answer our research questions. In addition, we analyze whether the foreign ownership effect differs between two crises, which occurred in the same economy, in different periods of time and with different characteristics. To our knowledge the paper is unique in these respects. We analyze manufacturing firms created in Portugal in the period 1988-2005 by following their paths during the whole period and the economic slowdowns of early 1990s and 2000s. Portugal in particular is an interesting case as the economy experienced these significant slowdowns which provide us with 'a natural experiment to identify directly the ''footloose nature'' of multinationals' (Á lvarez & Gö rg, 2009).Results from past lessons may be of value in understanding more modern recessions, such as the one from which the world economy is currently recovering. For the Portuguese case we add to the previous important contributions of Portugal (2002, 2004), by enlarging the time span of their study and focusing on the potential effect of foreign ownership during (different) downturn periods. Compared to Varum and Rocha (2011), who examined the link between foreign ownershi...

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Lessons from the Past and Directions for the Future

2012

New Drctns for Instit Rsrch

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(Not So) Easy Come, (Still) Easy Go? Footloose Multinationals Revisited

Cited by 6 publications

References 48 publications

Labour Demand Adjustment: Does Foreign Ownership Matter?

Labour Demand Adjustment: Does Foreign Ownership Matter?

Economic slowdowns, hazard rates and foreign ownership

Lessons from the Past and Directions for the Future

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