Corporate International Diversification and the Cost of Equity: European Evidence
IESEG School of Management Lille/Paris; French National Center for Scientific Research (CNRS) - Lille Economie & Management (LEM) UMR 8179
HEC Management School - University of Liège; Maastricht University - Department of Finance; Gambit Financial Solutions
This paper analyzes the impact of corporate international diversification (CID) on the cost of equity through the notion of psychic distance between countries. Using a large European sample of 598 firms, our findings indicate that this dimension significantly influences corporate risk exposure. By isolating three additive components of the Foreign Sales Ratio (FSR), we obtain the most significant results by geographically partitioning the sample, provided that firms are further classified by sector. Our framework sheds new light on the CID of firms belonging to Finland, Sweden and the United Kingdom, as well as the Consumer Cyclical, Consumer Non-Cyclical and Information Technology sectors.
Number of Pages in PDF File: 61
Keywords: Internationalization, Psychic Distance, Asset Pricing
JEL Classification: F3, F36working papers series
Date posted: May 8, 2003
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