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Internationalization and the Cross-section of Stock Returns: Evidence from Multinational Corporations Publicly Listed in the U.K

Author

Listed:
  • Nawar Hashem

    (Department of Banking and Finance, Damascus University, Syria)

  • Larry Su

    (School of Business, University Technology Brunei, Brunei Darussalam)

Abstract

The link between internationalization and firm performance is a key issue in international business research. This paper thus proposes two main opposing channels through which the degree of internationalization affects stock returns for multinational corporations (MNCs). In particular, MNCs can benefit from risk reduction through international diversification, yet may be exposed to more risk factors in international markets. Using a sample of 566 MNCs publicly listed on the London Stock Exchange (LSE) during 1999 and 2015, this paper finds that the degree of internationalization positively and significantly correlates to the cross-section of stock returns in all Fama-MacBeth regressions, even after accounting for beta, size, book-to-market, leverage, momentum, and product market competition. In addition, the interaction term between product market competition and internationalization is significantly negative. The results indicate that firms or industries with a higher degree of internationalization earn, on average, higher risk-adjusted returns, but only in less competitive industries.

Suggested Citation

  • Nawar Hashem & Larry Su, 2019. "Internationalization and the Cross-section of Stock Returns: Evidence from Multinational Corporations Publicly Listed in the U.K," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(3), pages 245-263, December.
    • Handle: RePEc:ijb:journl:v:18:y:2019:i:3:p:245-263
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    References listed on IDEAS

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    More about this item

    Keywords

    internationalization; stock returns; multinational corporations; asset pricing; London Stock Exchange;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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