## _wp11227 - 1. Number of Listed Firms

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---

### Introduction and objective
- Since late 2009 developments concerning the sovereign debt of Greece and other euro-zone peripheral countries have occupied financial markets.
- Aim: analyze through what channels the euro sovereign crisis may have spilled over to the real sectors of various countries and how effective policies announced were in mitigating (or not) spillovers through these channels.
- Two theoretical channels of spillover:
  - Financial channel: creditor-country banks exposed to sovereign risk see balance sheets impaired, cut back on lending (“deleverage”) or become reluctant to lend to firms.
  - Trade channel: affected countries cut back on imports, reducing demand and hurting exporters’ sales and profitability.

### Key events and associated market responses
- May 10, 2010 (EFSF establishment and €750 billion rescue package):
  - Stock market indexes for periphery and core euro-zone countries increased by 10% and 8% respectively.
  - Sovereign CDS dropped by 162 basis points and 11 basis points for periphery and core euro-zone countries respectively.
  - The euro appreciated by 2% on May 10, 2010, from 1.265$/€ to 1.284$/€.
- June 8–10, 2011 (public disagreement on private sector participation for Greek resolution):
  - Stock market indexes for periphery and core euro-zone countries decreased by 2.3% and 1.3% respectively.
  - Sovereign CDS went up by 74 basis points and 4 basis points for periphery and core euro-zone countries respectively.
  - The euro depreciated by 2.2% between June 7 and June 10, 2011.
- July 19–21, 2011 (announcement of second bail-out loan terms; event window includes anticipation):
  - Leaders announced second bail-out loan to Greece of €109 billion with voluntary participation of private creditors, net contribution of €37 billion.
  - EFSF adaptation to intervene in secondary markets announced.
  - Average increase in stock indexes between July 19 and 21 was some 5% for core euro area and 6% for peripheral euro countries.

### Empirical approach, sample and data
- Method: firm-level stock-price event analysis around key dates using cross-sectional specifications to identify financial vs. trade channels.
- Sample: 3,045 non-financial firms in 16 countries.
- Events analyzed: May 10, 2010; June 8-10, 2011; July 19-21, 2011.
- Rationale: stock prices used as forward-looking indicators where micro-level accounting and bank exposure data are not timely.

### Framework and identification strategy
- Core empirical specification (per event):
  - StockReturni,k,j = β1 * FinancialDependencej * TradeLinkagejk + λ * Control + εijk (notation as in source).
  - Financial dependence interacts with country-level BankExposurek: βk = β1 + β2 * FinancialExposurek.
  - Trade linkage interacts with Euro dummy: λk = λ1 + λ2 * Eurozonek.
- Key hypotheses:
  - H1: β1 >0 for positive news, β1 <0 for negative news.
  - H2: β2 >0 for positive news, β2 <0 for negative news.
  - H3: λ1 >0 for positive news, λ1 <0 for negative news.
  - H4: λ2 <0 for positive news, λ2 >0 for negative news.

### Key data and measurement
- Dependent variable: percentage change in stock price (Datastream total return index, adjusted).
- Financial dependence (sector-level DEF_INV): (capital expenditures - cash flow) / capital expenditures; sector median 1990–2006; observed range between 0 and 1; standard deviation = 0.32.
- Trade exposure: sector j exports from country k to country-group cg / sector j total exports from country k; observed range between 0 and 0.96; standard deviation = 0.1.
  - Example: 22% of French exports went to the five peripheral countries; 13.6% of German exports went to those five countries.
- Bank lending exposure: consolidated foreign claims by nationality of reporting banks (BIS Q4 2006), BankExposurek,cg = foreign claims of country k on group cg / total foreign claims of country k.
  - Example: Bank exposure to peripheral euro countries ranges from 11.3% for the United Kingdom to 18% for Germany and 20% for France.
  - Average bank exposure used in evaluation: 7.7 percent.
- Controls: Firm size = log(book assets) in US dollars.
- Abnormal-return construction for robustness: Abnormal Return_{i,j,k} = Stock Return_{i,j,k} – Alpha_i – Beta_i * Market Return_k; alpha and beta estimated for year 2006; winsorized at the 1 percent level; Alpha scaling: (1/5)*Alpha for May 10, 2010; (3/5)*Alpha for June 8-10, 2011 and July 19-21, 2011.

### Main empirical findings — overview
- Overall conclusion: crisis spillovers to the real economy occurred mostly through financial channels and somewhat through trade channels, more so for EU firms.
- Financial channel dominance: interaction FinancialDependence × BankExposure is consistently important and often highly significant, especially within the EU.
- Trade channel: present in some specifications but generally weaker and often insignificant for euro-area firms; exchange-rate movements (euro appreciation/depreciation) influence empirical trade-channel estimates.

### Event-specific empirical findings — May 10, 2010 (positive announcement)
- Sample descriptive:
  - Event-period raw ranges of stock price changes: -13.3 to 13.7 percent.
  - Average stock-price change (full sample): 2.26 percent.
  - Average stock-price change (EU sample): 3.4 percent.
- Key econometric results:
  - Interaction FinancialDependence × BankExposure positive and significant (example reported coefficient on FinancialDependence = 0.10; average bank exposure = 7.7 percent used for evaluation).
  - Euro dummy positive and significant; Euro dummy × TradeExposure significantly negative (overall effect for euro-zone firms reported as "about zero, 6.6 - 6.51" in source text).
  - With sector and country fixed effects, financial channel remains statistically very significant; trade channel weakens and can become insignificant.
- Illustrative magnitudes:
  - Example (Table 3, Column 6): a firm in “Manufacturing of Medical and Surgical instruments” (dependence at 75th percentile) in the United Kingdom (bank exposure at 75th percentile) was 0.22 percent higher in stock return than a firm in “Pulp, Paper, and Paperboard Mills” (dependence at 25th percentile) in Canada (bank exposure at 25th percentile). The 0.22 percent difference compared with the average increase 2.26 percent.

### Event-specific empirical findings — June 8-10, 2011 (negative market reaction)
- Sample descriptive:
  - Event-period raw ranges of stock price changes: -15.6 to 17.19 percent.
  - Average stock-price change (full sample): -0.43 percent.
- Key econometric results:
  - External financial dependence negative and significant — financially dependent sectors experience larger drops.
  - Interaction FinancialDependence × BankExposure negative and significant — larger drops for financially dependent firms in countries whose banks are more exposed to peripheral euro countries.
  - Trade exposure negative and significant — firms with larger trade linkages to peripheral euro countries experienced larger declines.
  - Euro dummy coefficient significantly negative = -3.63; trade exposure coefficient = -5.08; interaction Euro dummy × TradeExposure = 6.59 (interpretation: euro depreciation around the event improved competitiveness of euro-zone firms relative to non-euro firms).
  - Financial-channel interaction and trade exposure remain significant with sector and/or country fixed effects.

### Event-specific empirical findings — July 19-21, 2011 (second bail-out approval)
- Sample descriptive:
  - Event-period raw ranges of stock price changes: -13.7 to 17.2 percent.
  - Average stock-price change (full sample cited comparisons): 0.45 percent (contextual average increase referenced).
- Key econometric results (General sample, Table 7):
  - Financial Dependence coefficients and FinancialDependence*BankExposure to PEC positive in many specifications (examples: Financial Dependence 0.64*** in one specification; Financial Dependence*Bank Exposure to PEC entries include 2.30; 5.83; 7.47; 9.46*; 9.87* across columns).
  - Firm Size positive and highly significant across specifications (example values: 0.14*** through 0.15***).
  - Trade Exposure to PEC mixed: positive and significant in some general-sample specifications (e.g., 3.07***) but mixed in EU subsamples.
  - Observations: 3,042 in general-sample specifications reported; R-squared range example: 0.011 to 0.119.
- EU-sample amplification:
  - Interaction FinancialDependence*BankExposure large and often statistically significant in EU sample (examples from Table 8: 26.3**; 25.6**; 29.0***; 28.5**).
  - Example (Table 4, Column 5 earlier for May event analog): European firm in “Manufacturing of Medical and Surgical instruments” in Germany (dependence at 75th percentile; bank exposure at 75th percentile) had a stock return 0.66 percent larger than a firm in “Pulp, Paper, and Paperboard Mills” in Austria (dependence at 25th percentile; bank exposure at 25th percentile). The 0.66 percent difference compared with the EU average increase 3.4 percent.
- Abnormal returns and weighted regressions confirm main patterns: financial channel key; trade channel less pronounced or sensitive to controls.
- Examples of quantitative magnitudes preserved:
  - Interaction FinancialDependence*BankExposure to PEC: 16.7*** ([5.38]) in weighted regressions (Table 10, General Sample); 32.1*** ([9.31]) in EU Sample.
  - Abnormal-return Table 9 (Third Event, General Sample): Financial Dependence*Bank Exposure to PEC = 7.34.
  - Exposure to GIP's public sector: Financial Dependence*Bank Exposure to GIP = 14.6*; 15.8** in Table 11 (General Sample); 16.9* ([9.48]) in Table 12 (Euro Sample).

### Robustness checks and alternative specifications
- Abnormal returns (market-model approach): winsorized at the 1 percent level; alpha scaling applied as (1/5)*Alpha for the first event and (3/5)*Alpha for second and third events. Results using abnormal returns support main findings:
  - May 10, 2010: financial-dependence × bank exposure positive and significant; trade exposure × Euro dummy negative and significant in full sample.
  - June 8-10, 2011: financial-dependence × bank exposure negative and significant; trade exposure negative and significant but Euro dummy × trade exposure positive and significant.
  - July 19-21, 2011: confirms prior results.
- Weighted regressions: weight = inverse of the square root of the number of companies per country to reduce bias from overrepresented countries. Weighted results confirm importance of financial channel across events.
- Exposure limited to GIP (Greece, Ireland, Portugal) and bank exposure to public sector only (BIS for claims; Bankscope for Tier-1 capital; data based on Q2, 2009):
  - May 10, 2010: FinancialDependence × BankExposure to GIP positive and significant.
  - June 8-10, 2011: FinancialDependence × BankExposure to GIP negative and significant.
  - July 19-21, 2011: FinancialDependence × BankExposure to GIP positive and significant.
  - Trade exposure to GIP and Euro dummy × trade exposure: expected signs but generally not significant.

### Main interpretation and links to literature
- Creditor banking sector acts as an amplification channel transmitting sovereign risk to non-financial firms across borders.
- Results complement literature on euro-zone integration and sovereign-to-private borrowing-cost spillovers by providing firm-level asset-price evidence across countries in a currency-union context.
- Evidence aligns with prior work emphasizing financial linkages (vs. trade) as primary in crisis transmission but shows trade effects can matter depending on exchange-rate movements and event context.

### Policy implications and recommendations
- Policy measures that support affected sovereigns and strengthen creditor banks can help maintain credit flows to firms and mitigate spillovers via the financial channel.
- Measures that sustain demand in affected countries can help prevent trade-channel spillovers to exporters in other countries.
- Coordinated policy responses among closely integrated countries are important; a coordinated approach to address sovereign debt crises would benefit both debtor and creditor countries.
- Policymakers should consider cross-border spillovers when designing interventions in a currency union to avoid unintended amplification through banking-sector linkages.
- The paper does not provide a full welfare assessment of euro-related policies; full welfare analysis requires evaluating both effects on firms and the costs of measures and distinguishing short- versus long-run effects.

### Key statistics and sample figures (preserved exactly as in source)
- Sample: 3,045 firms; TOTAL 3045.
- Event May 10, 2010: average increase (full sample) 2.26 percent; EU sample increase 3.4 percent; event-period raw range: -13.35 to 13.74.
- Event June 8-10, 2011: average change (full sample) -0.43 percent; event-period raw range: -15.62 to 17.19.
- Event July 19-21, 2011: example statistics include Financial Dependence coefficients and interaction terms reported (see main text for exact reported values).
- Representative magnitudes cited:
  - 0.27 percent (example difference; compared with average fall 0.43 percent).
  - 0.34 percent (Switzerland vs. Australia trade exposure comparison).
  - Trade exposure percentiles/values: 9.9 percent; 0.6 percent; 18.5 percent; 8.4 percent.
  - 0.08 percent (Netherlands vs. Belgium example).
  - EU average drop: 1.15 percent.
  - 0.46 percent (Germany vs. Austria example).
  - 0.29 percent and 1.24 percent (UK vs. Canada example) and average increase 0.45 percent (contextual comparisons).
  - Coefficient of financial dependence cited: -3.1.
  - Average exposure used in interpretation: 13.5 percent.
  - Financial dependence coefficient referenced: 0.17 (in Table 11 discussion).
  - Winsorization at the 1 percent level for abnormal returns.
  - Alpha scaling: (1/5)*Alpha for the first event, (3/5)*Alpha for the second and third events.
  - Weighted regression weight: inverse of the square root of the number of companies per country.
  - Data for GIP bank-public-sector exposures based on Q2, 2009.
  - Table 1 country firm counts (selected): AUSTRALIA 182; AUSTRIA 29; BELGIUM 43; BRAZIL 63; CANADA 283; CHILE 13; DENMARK 43; FRANCE 169; GERMANY 236; JAPAN 1296; MEXICO 22; NETHERLANDS 50; SWEDEN 120; SWITZERLAND 93; TURKEY 68; UNITED KINGDOM 335; TOTAL 3045.

*Source: _wp11227 - 1. Number of Listed Firms.*

### 1. Number of Listed Firms ..............................................................................................

### _wp11227 - 1. Number of Listed Firms ..............................................................................................

### Introduction and objective
- Since late 2009 developments concerning the sovereign debt of Greece and other euro-zone peripheral countries have occupied financial markets.
- Aim: analyze through what channels the euro sovereign crisis may have spilled over to the real sectors of various countries and how effective policies announced were in mitigating (or not) spillovers through these channels.
- Two theoretical channels of spillover:
  - Financial channel: creditor-country banks exposed to sovereign risk see balance sheets impaired, cut back on lending (“deleverage”) or become reluctant to lend to firms.
  - Trade channel: affected countries cut back on imports, reducing demand and hurting exporters’ sales and profitability.

### Key events analyzed and associated market responses
- May 10, 2010 (EFSF establishment and €750 billion rescue package):
  - Stock market indexes for periphery and core euro-zone countries increased by 10% and 8% respectively.
  - Sovereign CDS dropped by 162 basis points and 11 basis points for periphery and core euro-zone countries respectively.
  - The euro appreciated by 2% on May 10, 2010, from 1.265$/€ to 1.284$/€.
- June 8–10, 2011 (public disagreement on private sector participation for Greek resolution):
  - Stock market indexes for periphery and core euro-zone countries decreased by 2.3% and 1.3% respectively.
  - Sovereign CDS went up by 74 basis points and 4 basis points for periphery and core euro-zone countries respectively.
  - The euro depreciated by 2.2% between June 7 and June 10, 2011.
- July 19–21, 2011 (announcement of second bail-out loan terms; event window includes anticipation):
  - Leaders announced second bail-out loan to Greece of €109 billion with voluntary participation of private creditors, net contribution of €37 billion.
  - EFSF adaptation to intervene in secondary markets announced.
  - Average increase in stock indexes between July 19 and 21 was some 5% for core euro area and 6% for peripheral euro countries.

### Empirical approach, sample and data
- Method: use firm-level stock price data around key event dates and benchmark firm characteristics to identify channels; stock prices used as forward-looking indicators of market assessment.
- Sample: 3045 firms in 16 countries, with focus on firms in the EU.
- Rationale: lack of timely micro-level accounting and bank exposure data makes stock-price event analysis a practical alternative to trace channels.

### Main empirical findings
- Overall conclusion: the European sovereign debt crisis spilled over to the real economy in other countries mostly through financial channels and somewhat through trade channels, and more so for EU firms.
- May 10, 2010 (positive policy announcement effects):
  - Stock prices particularly increased for more financially–constrained firms.
  - Larger increases in countries where banks had large pre-crisis claims on peripheral euro-zone countries.
  - Significant increases for sector-country pairs with heavy pre-crisis trade exposure to peripheral euro-zone countries, particularly for non-euro-zone countries (possibly aided by concurrent euro appreciation).
- June 8–10, 2011 (negative market reaction):
  - Effects parallel May 10 but with opposite signs: financially-constrained firms in countries with banks more exposed suffered more.
  - Firms in sectors that exported more to the peripheral countries experienced larger negative effects.
- July 19–21, 2011 (positive resolution effects):
  - Stock prices increased more for non-financial firms with high external financial dependence and from countries with larger banking exposure to peripheral euro countries—similar pattern to May 2010.

### Interpretation and link to literature
- Findings indicate the creditor banking sector can act as an amplification channel transmitting sovereign risk to non-financial firms across borders.
- Paper complements literature on euro-zone integration by showing potential reversal of pre-euro benefits during financial stress, and relates to studies on sovereign-to-private borrowing-cost spillovers.
- Evidence aligns with prior work that emphasizes financial linkages (vs. trade) as key in crisis transmission but adds firm-level asset-price evidence across countries in a currency union context.

### Policy implications and recommendations
- Policy measures that support affected sovereigns and strengthen creditor banks can help maintain credit flows to firms and mitigate spillovers via the financial channel.
- Measures that sustain demand in affected countries can help prevent trade-channel spillovers to exporters in other countries.
- Coordinated policy responses among closely integrated countries are important; a coordinated approach to address sovereign debt crises would benefit both debtor and creditor countries.
- Policymakers should consider cross-border spillovers when designing interventions in a currency union to avoid unintended amplification through banking-sector linkages.

*Source: _wp11227 - 1. Number of Listed Firms.*

### 2010. We also explore higher-frequency (daily) movements at the firm level, which allows us

### _wp11227 - 2010. We also explore higher-frequency (daily) movements at the firm level, which allows us

### Framework and identification strategy
- Purpose: Distinguish, using firm-level stock price data, the financial and trade channels through which the crisis in peripheral euro countries spilled over to other countries.
- Conceptual identification:
  - Financial channel: firms that rely more on external finance for investment should be more affected by shocks to the supply of external financing.
  - Trade channel: firms that rely more heavily on exports to peripheral euro countries should be more affected by shocks to demand/trade.
- Basic cross-sectional specification (for each event):
  - StockReturni,k,j = β1 * FinancialDependencej * TradeLinkagejk + λ * Control + εijk (notation as in source; i = company, j = sector, k = country).
  - Financial dependence interacts with country-level Financial Exposurek to allow β to vary: βk = β1 + β2 * Financial Exposurek.
  - Trade linkage interacts with Euro dummy to allow λ to vary: λk = λ1 + λ2 * Eurozonek.

### Key data and measurement
- Dependent variable:
  - Percentage change in stock price: total rate of return index from Datastream (adjusted for dividends and capital actions).
  - Events analyzed: May 10, 2010; June 8-10, 2011; July 19-21, 2011.
- Financial dependence (sector-level benchmark; Rajan and Zingales 1998 methodology, expanded to ~110 3-digit SIC sectors):
  - Dependence on external finance for investment = (capital expenditures - cash flow) / capital expenditures.
  - Cash flow = cash flow from operations + decreases in inventories + decreases in receivables + increases in payables.
  - Sector-level median from firm ratios (1990-2006) used as DEF_INV.
  - DEF_INV observed range: between 0 and 1; standard deviation = 0.32.
- Trade exposure:
  - Constructed from bilateral exports at the 4-digit SIC sector-level for year 2006 (UN Comtrade).
  - TradeExposurejk,cg = sector j's exports from country k to country-group cg / sector j's total exports from country k.
  - Example comparisons: 22% of French exports went to the five peripheral countries; 13.6% of German exports went to those five countries.
  - Trade exposure observed range: between 0 and 0.96; standard deviation = 0.1.
- Bank lending exposure:
  - Consolidated foreign claims by nationality of reporting banks (immediate borrower basis), BIS Q4 2006.
  - BankExposurek,cg = total foreign claims of country k on country-group cg / total foreign claims of country k.
  - Example values: Bank exposure to peripheral euro countries ranges from 11.3% for the United Kingdom to 18% for Germany and 20% for France.
  - Average bank exposure mentioned in analysis: 7.7 percent (used to evaluate average effect).
- Control variables:
  - Firm size = log(book assets) in US dollars.
- Sample:
  - 3,045 non-financial firms from 16 advanced and emerging economies.

### Key hypotheses tested (as stated)
- H1: β1 >0 for positive news, β1 <0 for negative news — financially-dependent firms react more.
- H2: β2 >0 for positive news, β2 <0 for negative news — stronger bank exposure amplifies financial-channel effects.
- H3: λ1 >0 for positive news, λ1 <0 for negative news — firms with greater trade exposure react more.
- H4: λ2 <0 for positive news, λ2 >0 for negative news — euro-zone membership modifies trade-channel effects (example: bailout may cause euro appreciation and reduce exporters’ competitiveness).

### Descriptive statistics and event responses
- Sample size: 3,045 firms across 16 countries.
- Event-period raw ranges of stock price changes:
  - May 10, 2010: -13.3 to 13.7 percent.
  - June 8-10, 2011: -15.6 to 17.19 percent.
  - July 19-21, 2011: -13.7 to 17.2 percent.
- Average stock-price changes reported:
  - Average increase (full sample, May 10, 2010 event): 2.26 percent.
  - Average increase (EU sample, May 10, 2010 event): 3.4 percent.
- Firm size dispersion: 75th percentile firm is eight times larger than 25th percentile firm.

### Empirical results — May 10, 2010 (€750 billion bail-out fund announcement)
- Main findings (full sample, Table 3):
  - Column 1: external financial dependence coefficient positive but insignificant; large firms and firms with larger trade exposure to peripheral euro countries show stronger positive responses.
  - Column 2: interaction FinancialDependence × BankExposure positive and significant, indicating stronger gains for financially-dependent firms in countries whose banking systems are more exposed to peripheral euro countries.
    - Reported coefficient on FinancialDependence = 0.10.
    - Average bank exposure used in evaluation = 7.7 percent.
  - Column 3: Euro dummy positive and significant; interaction Euro dummy × TradeExposure significantly negative (overall effect for euro-zone firms reported as "about zero, 6.6 - 6.51" in source text).
  - Columns 4–6 (adding sector and/or country fixed effects): financial channel remains statistically very significant; trade channel effect weakens and becomes insignificant when country fixed effects included.
- Economic magnitudes:
  - Example (Table 3, Column 6): a firm in “Manufacturing of Medical and Surgical instruments” (financial dependence at 75th percentile) in the United Kingdom (bank exposure at 75th percentile) was 0.22 percent higher in stock return than a firm in “Pulp, Paper, and Paperboard Mills” (dependence at 25th percentile) in Canada (bank exposure at 25th percentile). The 0.22 percent difference is large relative to the average increase 2.26 percent.
- EU-only sample (Table 4):
  - External financial dependence positive and significant (Column 1).
  - Interaction FinancialDependence × BankExposure positive and significant in all specifications (Columns 2–5); coefficient larger than in full sample.
  - Trade exposure negative (Columns 3–5) but becomes insignificant when including sector and country fixed effects.
  - Example (Table 4, Column 5): a European firm in “Manufacturing of Medical and Surgical instruments” (dependence at 75th percentile) in Germany (bank exposure at 75th percentile) had a stock return 0.66 percent larger than a firm in “Pulp, Paper, and Paperboard Mills” (dependence at 25th percentile) in Austria (bank exposure at 25th percentile). The 0.66 percent difference is large compared with the EU average increase 3.4 percent.
- Interpretation:
  - For the May 10, 2010 announcement, the financial channel (via bank balance-sheet strengthening and improved willingness to supply external financing) appears to be the primary transmission mechanism, especially inside the EU. Trade effects are present but weaker and sensitive to euro-appreciation dynamics.

### Empirical results — June 8-10, 2011 (Germany’s proposal for more private sector participation in Greek assistance; generally perceived negatively)
- Main findings (Table 5):
  - Column 1: external financial dependence negative and significant — financially dependent sectors experience larger drops in stock prices.
  - Column 2: interaction FinancialDependence × BankExposure negative and significant — drops are larger for financially dependent firms in countries whose banking systems are more exposed to peripheral euro countries.
  - Column 2: trade exposure negative and significant — firms with larger trade linkages to peripheral euro countries experienced larger declines.
  - Column 3: Euro dummy coefficient significantly negative = -3.63; trade exposure coefficient = -5.08; interaction Euro dummy × TradeExposure coefficient significantly positive = 6.59. Interpretation offered: euro depreciation around the event improved competitiveness of euro-zone firms relative to non-euro firms, explaining the positive interaction.
  - Columns 4–6 (sector and/or country fixed effects included): financial channel interaction remains negative and significant in all specifications; trade exposure remains negative and significant in these specifications as well, and interaction of trade exposure and Euro dummy remains positive and significant.
- Interpretation:
  - For the June 8-10, 2011 negative event, both the financial channel (via bank exposure) and the trade channel are important in transmitting adverse shocks from peripheral euro countries to real-sector firms in creditor countries.

### Robustness and additional notes
- Standard errors clustered at the US SIC 3-digit sector.
- R-squared values noted as generally low, which is typical for event studies.
- Demand-sensitivity proxy considered but found always insignificant and therefore omitted from estimations.

*Source: _wp11227 - 2010. We also explore higher-frequency (daily) movements at the firm level, which allows us*

### 0.27 percent more than that of a firm from the “Pulp, Paper, and Paperboard Mills” sector

### _wp11227 - 0.27 percent more than that of a firm from the “Pulp, Paper, and Paperboard Mills” sector

### Main empirical findings: financial versus trade channels
- Financial channel is the primary transmission mechanism of shocks from peripheral euro countries to firms globally and within the EU.
- Trade channel is less important in transmitting shocks from peripheral euro countries to the real sectors of other economies and is often statistically insignificant for euro-area firms.
- Key illustrative comparisons:
  - A firm from the “Pulp, Paper, and Paperboard Mills” sector (dependence at the 25th percentile) in Canada (bank exposure at the 25th percentile) had a stock-price difference of 0.27 percent compared with a referenced firm — this 0.27 percent is large relative to the average fall in stock prices of 0.43 percent.
  - Based on Column 6 (non-euro example): a firm from the “Manufacturing of Equipment for Construction” sector in Switzerland (trade exposure at the 75th percentile of 9.9 percent) was 0.34 percent lower than a firm from the “Rolling, Drawing, and Extruding Nonferrous Metals” sector in Australia (trade exposure at the 25th percentile of 0.6 percent).
  - For euro-area firms the trade channel can be small or reverse sign: a firm from the “Production of Electronic Components” sector in Netherlands (trade exposure at the 75th percentile of 18.5 percent) was only 0.08 percent higher than a firm from the “Production of Industrial Inorganic Chemicals” sector in Belgium (trade exposure at the 25th percentile of 8.4 percent).

### Event-specific results (selected events)
- June 8-10, 2011 (EU sample, Table 6)
  - Confirms financial channel dominance: stock prices fall more for financially-constrained firms, especially in countries with higher bank exposure to peripheral euro countries.
  - Trade channel: not statistically significant for this event.
  - Example: a “Manufacturing of Medical and Surgical instruments” firm (financial dependence at the 75th percentile) in Germany (bank exposure at the 75th percentile) fell 0.46 percent more than a “Pulp, Paper, and Paperboard Mills” firm (dependence at the 25th percentile) in Austria (bank exposure at the 25th percentile). The difference (0.46 percent) compared with the average EU drop of 1.15 percent is described as very large.
- July 19-21, 2011 (approval of second bail-out package for Greece, Table 7)
  - Financial channel: positive effects in all specifications; remain significant with country and sector fixed effects.
  - Trade channel: positive and significant Euro dummy coefficient, but the interaction between trade exposure and the Euro dummy is insignificant — trade channel not a key transmission mechanism for this event.
  - Example (Column 6): a “Manufacturing of Medical and Surgical instruments” firm (financial dependence at the 75th percentile) in the United Kingdom (bank exposure at the 75th percentile) will have a return 0.29 percent larger than a “Pulp, Paper, and Paperboard Mills” firm (dependence at the 25th percentile) in Canada (bank exposure at the 25th percentile). The text notes a difference (1.24 percent) is very large compared with the average increase in stock prices (0.45 percent).
- Non-financial EU-only analysis (Table 8)
  - Interaction between financial dependence and country banking-system exposure is positive and significant.
  - Using coefficient of financial dependence (-3.1) and average exposure 13.5 percent, the result suggests the average effect of the announcement on financially-constrained firms to be positive (i.e., stock prices increased more for firms with higher external financial dependence located in countries with banks more exposed to peripheral euro countries).
  - Trade exposure coefficients are insignificant across specifications.

### Robustness checks
- Abnormal returns (market-model approach)
  - Abnormal Return_{i,j,k} = Stock Return_{i,j,k} – Alpha_i – Beta_i * Market Return_k (Equation (7)).
  - Betas constructed from correlation of weekly firm returns and local market returns; alphas from weekly average return minus beta times average market return; alpha and beta estimated for year 2006 to avoid crisis-period distortion.
  - Abnormal returns winsorized at the 1 percent level.
  - Alpha scaling for events: use (1/5)*Alpha for May 10, 2010; (3/5)*Alpha for June 8-10, 2011 and July 19-21, 2011.
  - Results using abnormal returns:
    - May 10, 2010: interaction between financial dependence and bank exposure positive and significant; interaction between trade exposure and Euro dummy negative and significant for the full sample.
    - June 8-10, 2011: interaction between financial dependence and bank exposure negative and significant for the full sample; trade exposure negative and significant, but Euro dummy x trade exposure positive and significant (euro-zone firms less affected).
    - July 19-21, 2011: confirms prior results; overall abnormal-return results strongly support earlier findings for general and EU samples.
- Weighted regressions
  - Weighting scheme: inverse of the square root of the number of companies per country to reduce bias from overrepresented countries.
  - Weighted results:
    - May 10, 2010: interaction financial dependence x bank exposure positive and significant; Euro dummy x trade exposure negative (loses significance with fixed effects).
    - June 8-10, 2011: financial channel negative and significant (larger stock price falls for financially-constrained firms in countries whose banks are more exposed to periphery); results hold for EU sample.
    - July 19-21, 2011: financial channel is key transmission mechanism globally and inside the EU.
  - Conclusion: weighted regressions confirm importance of financial channel; trade channel less pronounced.
- Exposure limited to Greece, Ireland, Portugal (GIP) and bank exposure to public sector only
  - Bank exposure to GIP public sector defined as ratio of banking sector’s foreign claims on GIP public sector over Tier-1 capital of the banking sector. BIS used for banks’ foreign claims; Bankscope used for Tier-1 capital. Data based on Q2, 2009.
  - Table 11 (general sample including bank exposure to GIP public sector):
    - May 10, 2010: interaction financial dependence x bank exposure to GIP positive and significant; financial dependence coefficient 0.17 (average effect larger for more financially-constrained firms); bank exposure to GIP’s public sector positive and significant.
    - June 8-10, 2011: interaction financial dependence x bank exposure to GIP negative and significant; average effects negative for financial dependence and bank exposure to GIP’s public sector.
    - July 19-21, 2011: interaction financial dependence x bank exposure to GIP positive and significant; average effects positive.
    - Trade exposure to GIP and Euro dummy x trade exposure: expected signs but not significant across events.
  - Table 12 (sample restricted to euro-zone countries plus Denmark; includes country and sector fixed effects):
    - Interaction between financial dependence and bank exposure to GIP positive and significant for first and third events, negative (insignificant) for second event.
    - Interpretation: confirms banking exposure channel even after controlling for potential euro-area effects.

### Quantitative sample and notable parameter values
- Sample: 3045 non-financial firms from 16 countries.
- Examples of numeric magnitudes preserved from the source:
  - 0.27 percent (example difference; compared with average fall 0.43 percent).
  - 0.34 percent (Switzerland vs. Australia trade exposure comparison).
  - Trade exposure percentiles and values cited: 9.9 percent (75th percentile), 0.6 percent (25th percentile), 18.5 percent (75th percentile), 8.4 percent (25th percentile).
  - 0.08 percent (Netherlands vs. Belgium example).
  - EU average drop referenced: 1.15 percent.
  - 0.46 percent (Germany vs. Austria example).
  - 0.29 percent and 1.24 percent (UK vs. Canada example) and average increase 0.45 percent.
  - Coefficient of financial dependence cited: -3.1.
  - Average exposure used in interpretation: 13.5 percent.
  - Financial dependence coefficient referenced: 0.17 (in Table 11 discussion).
  - Winsorization at the 1 percent level for abnormal returns.
  - Alpha scaling: (1/5)*Alpha for the first event, (3/5)*Alpha for the second and third events.
  - Weighted regression weight: inverse of the square root of the number of companies per country.
  - Data for GIP bank-public-sector exposures based on Q2, 2009.
  - Table 1 country firm counts (selected): AUSTRALIA 182; AUSTRIA 29; BELGIUM 43; BRAZIL 63; CANADA 283; CHILE 13; DENMARK 43; FRANCE 169; GERMANY 236; JAPAN 1296; MEXICO 22; NETHERLANDS 50; SWEDEN 120; SWITZERLAND 93; TURKEY 68; UNITED KINGDOM 335; TOTAL 3045.

### Policy implications and conclusions
- Policymakers should consider both:
  - Potential effects on the soundness of local banks (financial linkages) when planning or reversing support measures.
  - Trade linkages with peripheral euro countries, as trade exposure affected export demand and had differential effects across euro vs. non-euro firms, possibly via exchange-rate movements.
- The paper is not a comprehensive welfare assessment of euro-related policies; full welfare analysis would require evaluating both effects on firms and the costs of measures (e.g., effects on households, tax burdens) and distinguishing short- versus long-run effects. These are left for future research.

*Source: Extracted content from provided IMF PDF chapter/section.*

### 1. Event May 10 2010

### 1. Event May 10 2010

### Recorded values
- 3045
- 2.26
- 3.91
- 1.72
- 0.00
- 4.26
- -13.35
- 13.74

### Comparison: Event June 8-10 2011 (adjacent entry in source)
- 3045
- -0.43
- 3.87
- 0.00
- (blank line)
- -2.03
- 1.09
- -15.62
- 17.19

*Source: _wp11227 - 1. Event May 10 2010*

### 3. Event July 19-21 2011

### 3. Event July 19-21 2011

### Event description
- Event: Approval of second bail-out for Greece (July 19-21 2011).

### Main econometric findings (General sample)
- Table 7 (General Sample, columns (1)–(6)):
  - Financial Dependence (Rajan and Zingales (1998)): 0.64***; 0.55; 0.20; -0.46
  - Financial Dependence*Bank Exposure to PEC: 2.30; 5.83; 7.47; 9.46*; 9.87*
    - Robust standard errors reported in table (e.g., [6.45], [5.65], [6.01], [5.22], [5.60])
  - Firm Size (Total Assets): 0.14***; 0.11***; 0.12***; 0.15***; 0.15***; 0.15***
    - Robust standard errors reported in table (e.g., [0.039], [0.042], [0.039], [0.048], [0.042], [0.044])
  - Trade Exposure to PEC: 3.07***; 0.81; 1.67; 0.75; 1.27; 0.25
  - Euro Dummy (euro=1 if country is part of Euro zone): 1.86***; 1.64**
  - Bank Exposure to PEC: 7.89***; -6.76; -5.70 (reported in specifications where included)
  - Observations: 3,042 (for all specifications reported)
  - R-squared values: 0.011; 0.020; 0.028; 0.073; 0.085; 0.119

- Statistical significance notation from source: *** p<0.01, ** p<0.05, * p<0.1. Robust standard errors in brackets. Clustering by sector. Bank exposure definition: country’s bank foreign claims on peripheral euro countries (PEC) over the country’s total bank foreign claims. Trade exposure definition: country’s exports of a certain sector to PEC over the country’s total exports in the same sector. No. of countries: 16.

### Main econometric findings (EU sample)
- Table 8 (EU Sample, columns (1)–(5)):
  - Financial Dependence: 0.28; -3.09**; -3.46***
  - Financial Dependence*Bank Exposure to PEC: 26.3**; 25.6**; 29.0***; 28.5**
    - Robust standard errors reported (e.g., [10.4], [11.5], [10.2], [11.2])
  - Firm Size (Total Assets): 0.31***; 0.28***; 0.31***; 0.24***; 0.26***
  - Trade Exposure to PEC: 0.098; -0.30; -0.16; 0.25; 0.59
  - Bank Exposure to PEC: -1.01; -0.89 (in specifications reported)
  - Observations: 1,024
  - R-squared values: 0.025; 0.040; 0.125; 0.065; 0.152
  - No. of countries with Bank exposure: 8.

### Abnormal returns across events (selected Third Event results)
- Table 9 (Abnormal Returns, Third Event: July 19-21, 2011):
  - General Sample:
    - Financial Dependence (Rajan and Zingales (1998)): -0.47
    - Financial Dependence*Bank Exposure to PEC: 7.34
    - Firm Size (Total Assets): -0.025
    - Trade Exposure to PEC: -2.21*
    - Bank Exposure to PEC: 0.59
    - Observations: 2,923
    - R-squared: 0.004
  - EU Sample:
    - Financial Dependence: -3.00*
    - Financial Dependence*Bank Exposure to PEC: 22.8**
    - Firm Size (Total Assets): -0.042
    - Trade Exposure to PEC: 1.01
    - Bank Exposure to PEC: -0.58
    - Observations: 960
    - R-squared: 0.013

### Weighted regressions (Normal Returns)
- Table 10 (Weighted Regression. Normal Returns, Third Event: July 19-21, 2011):
  - General Sample:
    - Financial Dependence*Bank Exposure to PEC: 16.7*** ([5.38])
    - Firm Size (Total Assets): 0.28*** ([0.069])
    - Trade Exposure to PEC: 0.28 ([1.74])
    - Observations: 3,042
    - R-squared: 0.237
  - EU Sample:
    - Financial Dependence*Bank Exposure to PEC: 32.1*** ([9.31])
    - Firm Size (Total Assets): 0.28*** ([0.11])
    - Trade Exposure to PEC: 0.68 ([1.35])
    - Observations: 1,024
    - R-squared: 0.190
  - Country and sector fixed effects included. General Sample: 16 countries. EU Sample: 8 countries.

### Exposure to GIP's public sector (selected Third Event results)
- Table 11 (Bank Exposure to GIP's Public Sector. Normal Returns, Third Event: July 19-21, 2011; General Sample):
  - Financial Dependence (Rajan and Zingales (1998)): -0.29
  - Financial Dependence*Bank Exposure to GIP: 14.6*; 15.8**
    - Robust standard errors reported in table (e.g., [7.38], [7.62])
  - Firm Size (Total Assets): 0.13***; 0.15***
  - Trade Exposure to GIP: 1.43; 0.59
  - Bank Exposure to GIP's Sovereign Debt: 5.94*** (in specification where included)
  - Observations: 2,690
  - R-squared: 0.026; 0.119 (across reported specifications)
  - GIP: Greece, Ireland and Portugal. No. of countries: 13.

- Table 12 (Euro Sample, Third Event: July 19-21, 2011):
  - Financial Dependence*Bank Exposure to GIP: 16.9* ([9.48])
  - Firm Size (Total Assets): 0.32*** ([0.086])
  - Trade Exposure to GIP: -2.20 ([4.53])
  - Observations: 683
  - R-squared: 0.221
  - No. of countries: 8.

### Cross-cutting patterns and interpretations from reported estimates
- Interaction effects between Financial Dependence and Bank Exposure to PEC are large and often statistically significant in the EU sample for the July 19-21, 2011 event (e.g., 26.3**, 25.6**, 29.0***, 28.5** in Table 8; 32.1*** in Table 10).
- In the General sample, interaction coefficients are smaller but several specifications show positive and sometimes significant coefficients (e.g., 9.46*, 9.87* in Table 7; 16.7*** in Table 10).
- Firm Size (Total Assets) is consistently positive and often highly significant in many specifications for the July 19-21, 2011 event (e.g., 0.14*** through 0.15*** in Table 7; 0.28*** in Table 10; 0.31*** in Table 8).
- Trade Exposure to PEC shows positive and significant coefficients in some general-sample specifications (e.g., 3.07*** in Table 7) but mixed results across EU subsamples and event windows.
- Bank Exposure to PEC and to GIP's sovereign debt appear in some specifications with sizeable coefficients (e.g., 7.89*** in Table 7; 5.94*** in Table 11), indicating importance of sovereign-bank linkages in event responses.

### Key sample sizes and fixed effects
- General sample observations reported around: 3,042 (Table 7), 3,043 (other tables), with No. of countries: 16.
- EU sample observations around: 1,024 (Table 8), with No. of countries with Bank exposure: 8.
- Many specifications include Sector Fixed Effects, Country Fixed Effects, or both (country & sector fixed effects). Robust standard errors clustered by sector.

### Figures and descriptive exposure metrics (as presented)
- Figures show CDS spreads for sovereign governments and banks and stock price indices around events; axes labeled: Left axis CDS spreads for Government (basis points); Right axis Stock Price Index.
- Trade Exposure (Figure 4): selected shares by destination group for countries shown (percentages reproduced in figure labels):
  - Examples from figure labels: Core, 14.5%; PEC, 21.9%; No EU, 34.2%; Rest EU, 29.4%; and other country-specific shares shown in figure.
- Bank Exposure (Figure 5): selected shares by destination group for countries shown (percentages reproduced in figure labels):
  - Examples from figure labels: Core, 5.4%; PEC, 19.9%; No EU, 47.7%; Rest EU, 27.0%; and other country-specific shares shown in figure.

*Document: _wp11227 - 3. Event July 19-21 2011 (IMF working paper tables and figures).*

### References

### _wp11227 - References

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### Sovereign risk, sovereign spreads, and government bond markets
- Arteta, Carlos, and Galina Hale, 2008, “Sovereign Debt Crises and Credit to the Private Sector,” Journal of International Economics, Vol. 74, No. 1, pp 53-69. 
- Borensztein, Eduardo, Kevin Cowan, and Patricio Valenzuela, 2007, “Sovereign Ceiling “Lite”? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies,” IMF WP/07/75.  
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- Mody, Ashoka, 2009, “From Bear Stearns to Anglo Irish: How Eurozone Sovereign Spreads Related to Financial Sector Vulnerability,” IMF Working Paper WP/09/108. 
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### Financial contagion, crisis transmission, and banking channels
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- Tong, Hui, and Shang-Jin Wei, 2011, “The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis,” Review of Financial Studies, Vol. 24, No. 6, pp. 2023-52. 
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- Cerutti, Eugenio. 2011, “Cross-Border Default Exposures and Rollover Risks: Measurement, Evolution, and Determinants,” Mimeo, IMF. 

### Corporate valuations, equity funds, and firm-level evidence
- Bris, Arturo, Yrjo Koskinen, and Mattias Nilsson, 2009, “The Euro and Corporate Valuations,” Review of Financial Studies, Vol. 22, No. 8, pp. 3171-209.  
- Hau, Harald, and Sandy Lai, 2011, “The Role of Equity Funds in the Financial Crisis Propagation,” Mimeo INSEAD. 
- Forbes, Kristin, 2004, “Asian Flu and Russian Virus: The International Transmission of Crises in Firm-Level Data,” Journal of International Economics, Vol. 63, No. 59-92. 
- Rose, Andrew K., and Mark M. Spiegel, 2010a, “Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure,” Pacific Economic Review, Vol. 15, No. 3, pp. 340-63.  
- Rose, Andrew K., and Mark M. Spiegel, 2010b, “The Causes and Consequences of the 2008 Crisis: Early Warning,” Global Journal of Economics, forthcoming. 

### Rating agencies, regulatory context, and financial sector vulnerability
- Ferri, Giovanni, Li-Gang Liu, and Giovanni Majnoni, 2001, “The Role of Rating Agency Assessment in Less Developed Countries: Impact of the Proposed Basel Guidelines,” Journal of Banking and Finance, Vol. 25, No. 1. 
- Borensztein, Eduardo, Kevin Cowan, and Patricio Valenzuela, 2007, “Sovereign Ceiling “Lite”? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies,” IMF WP/07/75.  

*Reference list from _wp11227 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11227.pdf_