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THE CHANGING RISK PROFILE OF U.S.‐BASED MULTINATIONAL CORPORATIONS EXPOSED TO EUROPEAN COMMUNITY MARKETS
Author(s) -
Chambliss Karen,
Madura Jeff,
Wright Francis W.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00179.x
Subject(s) - multinational corporation , european community , business , european market , economics , international trade , finance
In this study we investigate the risk characteristics of U.S.‐based multinational corporations (MNCs) that conduct much of their business in the European Community. Specifically, we assess the efficacy of a multifactor return‐generating model that incorporates the influence of U.S. and European markets. Our results demonstrate that the European market is a significant factor in explaining the time‐series behavior of MNC returns, and that the European market influence is stronger since the adoption of the Single European Act. In addition, the reduction in the sensitivity of MNCs to the U.S. market since the Single European Act is cross‐sectionally associated with changes in their proportional levels of European sales. The results suggest that the returns of other MNCs expanding into increasingly integrated regional blocs may experience similar changes in their systematic risk profile.