On the origins of the multinational premium

Arbeitspapier

How do foreign direct investment (FDI) dynamics relate to the risk premium of a firm? To answer this question, we compare the stock returns of US firms with different FDI and mergers and acquisitions (M&A) exposure to study the evolution of stock returns as firms expand into foreign markets. We document three empirical regularities. First, there are cross-sectional risk premia associated with both multinational activity and mergers and acquisitions. Second, firm-level stock returns decline when a firm undertakes M&A activity and with merger deepening. Third, future multinational acquirers already have higher stock returns compared with domestic non-acquirers prior to entering foreign markets, indicating that cross-sectional returns differentials are driven by selection based on common unobserved firm characteristics. We find that CEOs play a role in explaining the relationship between firms' risk premia and foreign expansion. To rationalize these facts, we develop a dynamic model in which management attitudes shape the relationship between firm characteristics, selection into FDI, and risk premia.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Papers ; No. 21-20

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Multinational Firms; International Business ; Financial Aspects of Economic Integration
• Thema: multinational firms ; mergers and acquisitions ; management ; stock returns

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Fillat, José ; Garetto, Stefania
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of Boston
• (wo): Boston, MA
• (wann): 2021

Weitere Informationen

• DOI: doi:10.29412/res.wp.2021.20
• Handle: http://hdl.handle.net/10419/250737
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ