The Asian Flu and Russian Virus: Firm-Level Evidence on How Crises are Transmitted Internationally*

This paper uses firm-level information to examine how the Asian and Russian crises affected different types of firms around the world. It constructs a new data set of financial statistics, industry information, geographic data, and stock returns for over 10,000 companies in 46 countries. Results indicate that firms that competed with exports from the crisis countries, and firms which had direct sales exposure to the crisis countries, had substantially lower abnormal stock returns during these periods. On the other hand, firms with higher debt ratios did not experience significantly lower abnormal returns. Country-specific effects, although important determinants of company stock returns, generally have a smaller impact than the firm-specific characteristics. This series of results suggests that trade channels are important determinants of how crises are transmitted internationally. * Thanks to Alberto Alesina, Peter Davis, Rudiger Dornbusch, Simon Johnson, Andrew Karolyi, S.P. Kothari, Jonathan Lewellen, Roberto Rigobon, Jeremy Stein and seminar participants at Brandeis, Chicago, Columbia, Dartmouth, the IMF, LACEA, MIT, NYU, Ohio State, Tufts, and the World Bank, for extremely helpful comments and suggestions. Thanks to Susan Choe, Jenny Jaung, Angeline Liu, and Daniel Nelkenbaum for help in preparing the data set. Author contact information: MIT-Sloan School of Management, Room E52-455; 50 Memorial Drive; Cambridge, MA 02142; email: [email protected]; phone: 617-253-8996; fax: 617-258-6855.