from an improvement in the prospects of exposed companies, one would expect parent companies with relatively larger interests in HIPC eligible countries to benet relatively more from the events. Therefore, dierences in the intensity of exposure to the event can be used to build an additional test of the hypothesis that the stock price response to the announcements comes from their signicance for rms' prospects, and to provide further support to the mechanism behind the results.

To build this test I construct a measure of the exposure of a parent company to a HIPC event by computing the ratio of the total employment of its aected aliates to the parent's total number of employees. The focus on employment as a size measure instead of assets is for data availability reasons; while data on parent company's assets is easy to obtain, most subsidiaries only report employment data to McGregor (2006). Employment data for those subsidiaries with some available information is typically obtainable only for 2005-2006, so subsidiary employment is considered as a xed subsidiary characteristic and is normalized by parent total employment data for the same year. Based on these data, a parent's company exposure to an announcement at time _t_ is computed as the ratio of the total employment of all its subsidiaries operating in beneted countries at that moment, to the parent's total employment. Recognizing that this measure is likely to contain an important amount of noise because of the assumptions required to extend the sample coverage, the nal measure does not exploit the continuous nature of this exposure indicator but instead classies parent companies in two groups depending on whether its exposure indicator is above or below the median level, and compare the behavior of the abnormal returns across these two groups.

The evolution of the _CAR_ for parent companies with relatively high and low exposure is reported in panels A and B of Figure 12. Panel C reports the evolution of the dierential eect of the exposure on these _CARs_ and their 90 percent condence bands. The response of _CAR_ in parent companies with relatively higher exposure to the events is clearly larger than that of less exposed companies (see Panels A and B). Moreover, this dierence is signicantly dierent from zero at conventional levels immediately after the event. As shown in Panel C, which exhibits the evolution of the dierence in _CAR_ for rms with relatively high exposure, the _CAR_ of these rms increases clearly more than that of rms with low exposure.

The results reported in this section show that returns of multinational rms with relatively larger interests in countries beneted by multilateral debt relief increase relatively more after the announcements of these initiatives. This nding provides strong support to the hypothesis that the abnormal returns for parent companies exposed to debt relief events in the baseline estimates are a consequence of the market's assessment that the events convey positive news for the value of these companies. Results in the next section further explore the reasons behind these assessments.

# 4.4 Economic Prospects versus Future Taxation

As discussed in the introduction, debt relief can increase the value of rms with operations in beneted countries by leading to higher growth, aggregate demand, and rms' gross prots, and by reducing expected future taxation and increasing after-tax prots. This section presents results aimed to disentangle what of these channels is most likely to be responsible for the stock return 17