Subsidiary uncertainty shocks and their effect on parent companies

We investigate the impact of subsidiary cross-sectional uncertainty shocks on the future investment decisions of multinational European Global Ultimate Owners during the period 2007 to 2017. We expand on the academic literature by utilizing a novel data set with global coverage and annual ownership links and analyzing publicly-listed, as well as private and smaller companies. We nd that Global Ultimate Owners decrease their future investment decisions in response to uncertainty shocks from their subsidiaries. We nd that two standard deviations generate a 0.41% reduction in the investment rate of parent companies. More importantly, we explore the multiplying e ect of nancial constraints in parent companies investment decisions and nd that parent-level nancial constraints multiply the e ect of lagged uncertainty shocks on investment rate by 4.82 times on average. Furthermore, we document that lagged uncertainty shocks also generate a decrease in intangible xed assets and cash flows