Discussion paper

DP12568 International Evidence on Firm Level Decisions in Response to the Crisis: Shareholders vs. Other Stakeholders*

The relationship between changes in GDP and unemployment during the 2008 financial crisis differed
significantly from previous experiences and across countries. We study firm-level decisions in
France, Germany, Japan, the UK, and the US. We find significant differences between the response
of US and non-US firms. US firms significantly decreased their production costs relative to firms in
other countries. They have also reduced debt, reduced dividend payout, and increased their cash
holdings compared to firms in other countries. The differences are, in general, explained by
differences in financial leverage. However, financial leverage does not explain differences between
production decisions in German and U.S. firms and between Japanese and US firms. We argue that
differences in firm governance between US firms and firms in Germany and Japan drive these
responses. US firms are more prone to cut labor costs and reduce leverage compared to German firms
and Japanese firms in order to achieve larger profits and a larger cash-cushion in the short-run.

£6.00
Citation

Allen, F and E Carletti (eds) (2018), “DP12568 International Evidence on Firm Level Decisions in Response to the Crisis: Shareholders vs. Other Stakeholders*”, CEPR Press Discussion Paper No. 12568. https://cepr.org/publications/dp12568