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International operations and international influences – Investing in UK firms

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  • Chadha, Pearlean
  • Berrill, Jenny

Abstract

We provide an alternative perspective on the benefits of investing in Multinational Companies (MNCs) using a unique hand-collected dataset on the location of UK firm's sales and subsidiaries from 1998 to 2015. We find that investors can gain diversification benefits from investing in MNCs, but not necessarily firms with the greatest global reach. We also show that firm's returns tend not to be influenced by the geographical regions where they report sales and subsidiaries. The results suggest a new category of firms that may be beneficial for diversification - firms that are significantly influenced by the stock markets of a geographical region but do not report sales or subsidiaries in that region. This implies that investors should analyse the geographical regions that influence firm returns rather than the location of their sales and subsidiaries. Intuitively, these should be the same, but our results show a difference between the geographical location of a firm's sales and subsidiaries, and the regions that influence the firm returns. We recommend that investors look beyond the location of MNC activities and investigate the geographical regions that influence firms' returns when creating portfolios.

Suggested Citation

  • Chadha, Pearlean & Berrill, Jenny, 2024. "International operations and international influences – Investing in UK firms," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:reveco:v:96:y:2024:i:pb:s1059056024006361
    DOI: 10.1016/j.iref.2024.103644
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    More about this item

    Keywords

    International diversification benefits; Multinational firms (MNCs); Mean-variance spanning;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F2 - International Economics - - International Factor Movements and International Business
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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