Optimal trade and direct investment strategy in response to financial risks

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We investigate the international transmission of the financial crisis in 2008-2009 to Japanese firms by examining both the stock price responses to the crisis events and the changes in operating performance subsequent to the crisis. Both the stock price responses and ex-post operating performance consistently indicate that the crisis hit Japanese firms through the trade and liquidity channels.We also find that firms with a higher exporting ratio, a lower liquidity to asset ratio decreased their temporary agency worker ratio to a greater extent after the crisis. The result suggests that temporary agency workers serve as a buffer to demand shocks.