in each industry. We assume that because of heterogeneity in intrinsic industry characteristics such as headquarter intensity and capital intensity, industries incur di¤erent bene...ts and costs from ...nancial integration and thus have di¤erent incentives to invest in subsidiaries. This assumption is consistent with the ...ndings of a growing literature led by Antras (2003) and Antras and Helpman (2004), who show that industries with higher headquarter intensity and capital intensity tend to have greater incentives to engage in integration and subsidiary investment.

To measure the degree of intra-...rm ...nancial linkages in each industry, we use the ratio of investments in subsidiaries relative to total assets for the median ...rm of each industry. This ratio captures the extent of ...nancial integration by the industry of parent ...rms. Given that the information required to compute the variable is not systematically available for private ...rms around the world, the variable is computed based on a dataset of publicly listed companies obtained from the Global COMPUSTAT. The measure is averaged for 2000-2004 to smooth out temporary ‡uctuations.

While identi...cation of our analysis does not require industries to have exactly the same ...nancial linkage levels over time and across countries, it does rely on the ranking of industries to be relatively stable. Otherwise, the proxy could potentially bias us against ...nding any relationship between ...nancial linkages and establishment responses to economic crises. For this reason, we perform two checks on the variable. First, we construct the measure using data from di¤erent time periods and ...nd the ranking of industries to be relatively stable over time. This observation suggests that industries’ranking in the degree of intra-...rm ...nancial linkages is mainly dependent on characteristics innate to each industry and thus unlikely to change structurally in response to short-term idiosyncratic shocks. Second, we compute the variable for each major MNC parent country and ...nd high rank correlations across countries. For our empirical analysis, we do not use country-speci...c measures to mitigate potential endogeneity even though in doing so our estimates could be potentially biased downward.

According to our measure, industries that exhibit the strongest ...nancial linkages between parents and subsidiaries include cut stone and stone products, newspapers: publishing or publishing and printing, fats and oils, ordance and accessories except vehicles and guided missiles, grain mill products, broadwoven fabric mills, manmade ...ber and silk, paperboard mills, and petroleum re...ning.<sup>12</sup> We also consider an alternative approach to examine the ...nancial linkage hypothesis. We follow Rajan and Zingales (1998) and Braun and Larrain (2005) in constructing a measure

> 12 As a robustness check, we also computed the ...nancial linkage variable using the average share of a¢ liate assets ...nanced by parent ...rms in each industry based on the U.S. BEA Direct Investment Abroad Benchmark Data. The results were largely similar. This measure has been considered in Antras, Foley and Desai (2009). Their analysis shows that host-country characteristics can exert a signi...cant e¤ect on the level of ...nancial linkages within MNCs. But to the extent that the e¤ect of country characteristics applies symmetrically across industries as shown in their paper, the ranking of industries is likely to be relatively similar across countries.

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