The Global Financial Crisis of 2008-2009 and the Fortune Global 500 Corporations. Looking for Losers among the Biggest - Exploratory Study

Article excerpt

Abstract:

The paper focuses on the influence of the financial crisis and economic downturn during 2008-2009 on the world's 500 biggest corporations. The authors present an overview of literature providing some insight into the impact the global financial crisis and economic downturn during 2008-2009 exerted on enterprises and their operations. The empirical data gathered from the Fortune Global 500 reports during 2007-2010 are used in cluster analysis and descriptive statistics. The empirical research conducted by the authors allows to indicate that among the analyzed population there exist significant differences in terms of their financial performance measured as return on revenues, return on assets and profit per employee. The discrepancies in this area grew during the crisis period. The reaction to the crisis among the analyzed population in the first year of the crisis (which was characterized by a high level of uncertainty among enterprises), was different than in the next year (when estimation of the risk associated with ongoing activities was easier). Among the companies that were most severely influenced by the crisis (their financial performance worsened the most) dominate those operating in Airlines, Diversified Financials and Motor Vehicles and Parts industries.

Keywords: financial crisis, economic downturn, corporations.

JEL codes: F23.

Introduction

The perspectives of research concerning financial and economic crisis during the years 2008-2009, which have so far dominated in the literature, are macroeconomic and mezzo-economic. However, there seems to exist a need for more in-depth research in the situation of broadly understood companies operating in the difficult conditions of financial crisis and economic downturn. The reasons forthat are twofold. First of all, the microeconomic perspective in this field of research is of special importance because between both of the mentioned phenomena and broadly understood enterprises there exists a direct feedback. The analyzed financial crisis and economic downturn not only directly influenced enterprises but were also openly spread all over the globe through corporate operations and linkages. Secondly, companies in the dominating free-market reality are one of the main players who are responsible for overcoming of the economic downturn.

Therefore the authors aim at examination whether within the world's 500 biggest1 corporations there was a group of organizations which suffered2 the most because of the global financial crisis and economic downturn. Furthermore, the authors want to indicate what was the industrial background of those corporations and what was their country of origin.

The paper has been divided into six sections. Section 1 is devoted to abrief presentation of definitions and concepts of financial and economic crisis. Section 2 presents some snapshots of the results of the studies focused on the economic downturn and its consequences for companies. Up till now there have been only scarce data about it. Section 3 is focused on the methodology of the study. Section 4 is devoted to the assessment of the overall situation of the biggest global corporations in the period of the global financial and economic crisis. Section 5 presents the results of cluster analysis used to segment the biggest global corporations according to their performance and Section 6 closes the paper with final remarks.

1. Definitions and concepts of financial and economic crisis

According to the literature, the financial crisis is a disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities [Mishkin 1996]. The economic crisis in the simplest terms is a sharp drop in economic activity (production, employment, investment). The financial crisis that broke through in 2008 led to the deepest and most synchronized global recession over the past 70 years [Gourinchas & Kose 2011]. …