Home Exposure of European Firms: The Role of Multinational Corporations

Abstract

This paper analyzes the exposure towards the home-specific factor (home exposure) of 4,153 firms from fifteen European countries. Especially, we investigate whether multinational (MNC) differ from national companies (NC). Therefore, we sort the firms that exist during the time period from January 2001 to December 2017 into MNCs and NCs based on their foreign sales ratio. We find that MNCs yield, on average, a higher home exposure than NC firms. Moreover, the home-specific factor has a higher relative importance for MNCs’ returns than for NCs. Hence, the returns of MNCs are closer linked to the home-specific factor than the returns of the NC firms. However, the relation between the firms’ home exposure and the foreign sales ratio is not linear. In addition, we analyze the difference in risk between MNCs and NCs and find a somewhat higher average total risk for MNCs within their home countries. However, the differences seem to be driven by unlike sector compositions of the groups of MNCs and NCs within the countries. Based on excess returns as well as on fourfactor alphas, MNCs outperform, on average, NC firms.

Keywords: Home Exposure, Multinationals, Performance, Risk

JEL Classification: G10, G11, G15, G19