looking nature of stock prices to deal with the timing problems. The approach relies on the standard assumption that stock prices quickly reect the market's view of the impact of these initiatives on the value of rms that operate in these countries, so, if these rms' values improve as a consequence of debt forgiveness, there should be an abnormal increase in their stock prices around major debt relief announcements.

Debt relief can impact the value of rms operating in beneted countries through two channels. The rst is through an improvement in the country's economic prospects. Debt relief may induce local governments to allocate more resources to public goods or human capital formation, or may increase private investment, resulting in higher economic growth. To the extent that the value of rms with operations in those countries is positively correlated with the state of aggregate demand, future economic expansion would increase their value. The second channel is the reduced need for future taxation. Absent severe contractions in public expenditure, repaying large levels of public debt likely requires a high level of taxation. In poor countries, where income taxes are hard to impose, these taxes tend to fall on companies.<sup>1</sup> Therefore, as long as markets assign a positive probability to the repayment of the debt, the relief should reduce expected taxation and increase rm value. If any of these channels is in operation, an event study on the behavior of the share prices of publicly traded companies operating in HIPC countries around dates of debt relief announcements provides an indirect test of the hypothesis that debt relief has a positive eect on economic performance .

Since HIPC countries typically lack well functioning and liquid stock markets, this paper follows Guidolin and La Ferrara (2007) and studies the response of the stock prices of multinational rms with subsidiaries and operations on HIPC countries, but that are traded in foreign, more developed nancial markets. In particular, it focuses on South African multinational companies traded in the Johannesburg Stock Exchange (JSE), which is a one of the largest and most active emerging stock markets, and where it is possible to obtain meaningful price data at a daily frequency. Focusing on South African multinationals has the additional advantage that these companies are smaller than global multinationals operating in African HIPC countries. Therefore, their operations in these countries are relatively more important and their share prices more likely to respond to events aecting their subsidiaries.<sup>2</sup> To implement this approach, I build a detailed chronology of the multilateral debt relief initiatives that allows me to identify the dates of dierent announcements related to the three major initiatives implemented since 1996 (HIPC, Enhanced HIPC, and MDRI), including the dates when individual countries reached any of the milestones considered in the HIPC framework (decision points and completion points). I also gather stock price data for a sample of 35 South African multinational companies with 187 subsidiaries and operations in African HIPC countries during the

> 1According to World Bank (2008) Paying Taxes Report, Sub-Saharan Africa is the continent with the highest overall business taxes, including the highest average prot taxes.

> 2Large global multinationals, such as Unilever, have operations in several African HIPC countries. However, it is unlikely that Unilever's stock price in the London Stock Exchange would vary importantly as a result of events aecting a marginal operation in Kenya. In contrast, operations in HIPC countries, while small, are not marginal for South African multinationals.

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