We thank Robert Barro, John Campbell, Eduardo Fernandez-Arias, Oliver Hart, Alejandro Micco, Andrei Shleifer, Jeremy Stein, and participants in seminars at Harvard University, the Latin American Econometric Society, and the Latin American Finance Network for valuable comments and suggestions. This article was improved substantially by incorporating comments from an anonymous referee and from Robert Stambaugh (the editor). All remaining errors are our own.
Finance and the Business Cycle: International, Inter-Industry Evidence
Article first published online: 3 MAY 2005
The Journal of Finance
Volume 60, Issue 3, pages 1097–1128, June 2005
How to Cite
BRAUN, M. and LARRAIN, B. (2005), Finance and the Business Cycle: International, Inter-Industry Evidence. The Journal of Finance, 60: 1097–1128. doi: 10.1111/j.1540-6261.2005.00757.x
- Issue published online: 3 MAY 2005
- Article first published online: 3 MAY 2005
By considering yearly production growth rates for several manufacturing industries in more than 100 countries during (roughly) the last 40 years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when they are located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.