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

This paper uses firm-level information to evaluate how crises are transmitted internationally. It constructs a new data set of financial statistics, industry information, geographic data, and stock returns for over 10,000 companies in 46 countries to test what types of firms were most affected by the East Asian and Russian crises. Results suggest that a product-competitiveness and income effect were both important transmission mechanisms during the later part of the Asian crisis and the Russian crisis. For example, if a firm's main product line competed with a major East Asian export, the firm's average daily abnormal stock return was 13 percent lower during the Asian crisis. The magnitude of this product competitiveness effect during the Russian crisis was 32 percent. Results suggest that a credit crunch was not important during either crisis. Finally, country-specific effects, which are poorly explained by macroeconomic and corporate governance variables, can have a larger impact than all other transmission mechanisms combined.