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Measuring the diversification benefits of investing in highly internationalised firms

Author

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  • Berrill, Jenny
  • Kearney, Colm
  • O’Hagan-Luff, Martha

Abstract

A vast literature exists investigating if Multinational Companies (MNCs) provide indirect international exposure to investors. These studies produce mixed results. Unlike previous studies, we distinguish between various types of MNCs, in particular firms that are consistently international versus firms that are in the process of internationalising. We provide a unique longitudinal dataset of firm-level multinationality of 396 Russell 1000 firms between 1996 and 2010, and estimate the diversification benefits of investing in these firms using mean variance spanning and Sharpe ratio tests. We find that the most consistently international firms provide the greatest diversification benefits. Rapidly internationalising firms provide little benefit, suggesting that the costs of rapid firm-level internationalisation are substantial. This distinction between firms at differing stages of internationalisation adds to the debate on the benefits of investing in MNCs and provides a possible explanation to the conflicting findings in the literature.

Suggested Citation

  • Berrill, Jenny & Kearney, Colm & O’Hagan-Luff, Martha, 2019. "Measuring the diversification benefits of investing in highly internationalised firms," International Business Review, Elsevier, vol. 28(4), pages 672-684.
    • Handle: RePEc:eee:iburev:v:28:y:2019:i:4:p:672-684
    DOI: 10.1016/j.ibusrev.2019.01.005
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    Cited by:

    1. Halabi, Hussein & Alshehabi, Ahmad & Wood, Geoffrey & Khan, Zaheer & Afrifa, Godfred, 2021. "The impact of international diversification on credit scores: Evidence from the UK," International Business Review, Elsevier, vol. 30(6).
    2. S. Veeramani & Abha Shukla & Mariam Jamaleh, 2020. "Financial theories of foreign direct investment: a review of literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 185-217, June.
    3. Do, Hung X. & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "Multinationals and stock return comovement," Global Finance Journal, Elsevier, vol. 52(C).
    4. Le, Thai-Ha & Nguyen, Canh Phuc & Su, Thanh Dinh & Tran-Nam, Binh, 2020. "The Kuznets curve for export diversification and income inequality: Evidence from a global sample," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 21-39.
    5. Lee, Junyong & Lee, Kyounghun & Oh, Frederick Dongchuhl, 2023. "International portfolio diversification and the home bias puzzle," Research in International Business and Finance, Elsevier, vol. 64(C).

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