How Do Foreign Firms Manage Their Exposure to United States Portfolio Flows?

From 1990 to 2013, US portfolio flows to foreign stocks and bonds nearly quadrupled. Across 44 countries, I show that non-US firms with stock returns that are more sensitive to these cross-border flows are more likely to sell stocks and bonds, but display lower investment and employment growth rates. Using large natural disasters and industrial accidents to identify bad shocks across countries, I document that after disasters occur, firms that are more sensitive to US flows are less likely to tap capital markets and tend to cut their real behaviors at higher rates. Additionally, during natural disaster years, firms with higher sensitivity to US flows have significantly lower stock performance during the months in which US portfolio investors exit their country's capital market, and not vice versa, as would be expected if capital flight could potentially spill over to the real economy