From the financial crisis to the real economy: Using firm-level data to identify transmission channels

Using accounting data for 7722 non-financial firms in 42 countries, we examine how the 2007–2009 crisis affected firm performance and how various linkages propagated shocks across borders. We isolate and compare effects from changes in business cycle, international trade, and external financing conditions, on firms' profits, sales and investment using both sectoral benchmarks and firm-specific sensitivities estimated prior to the crisis. We find that the crisis had a bigger negative impact on firms with greater sensitivity to business cycle and trade developments, particularly in countries more open to trade. Interestingly, financial openness made limited difference.