International Journal of Business and Economics Volume 18, No. 3 December, 2019

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

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.

Keywords：internationalization; stock returns; multinational corporations; asset pricing; London Stock Exchange.

JEL Classifications：G11, G12, L11.

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