Multinational Corporations and Stock Returns: International Evidence

Abstract

We examine whether and how the multinationality of firms is reflected in stock returns. Using the monthly returns of 37,854 firms in 23 developed markets from 1990 to 2015, we document a robust empirical pattern in which multinational companies earn higher returns than domestic companies by 22 basis points per month. This finding is further confirmed in a longer time-series sample of 18,996 U.S. firms from 1973 to 2015. We find that well-known asset pricing anomalies or global factors cannot fully explain the multinational return premium. The magnitude of the multinational return premium depends on the location of foreign operations: it is more concentrated in multinationals operating in countries with lower GDP growth, higher GDP growth covariance with the home country, poorer financial development, lower intensity of trade in intangible assets, higher labor costs, higher entry barriers for new businesses, and greater distance from the home countries. Moreover, the return difference is more pronounced in countries with less stringent disclosure requirements. Our findings suggest that firms’ international activities can deliver relevant information to investors and predict stock returns.

Keywords: multinational companies, international diversification, returns

JEL Classification: G11, G12, G15