The Dark Side of Globalization: Evidence from the Impact of COVID-19 on Multinational Companies

Journal of International Business Studies, Forthcoming

72 Pages Posted: 22 Jun 2021 Last revised: 15 Jun 2022

See all articles by Omrane Guedhami

Omrane Guedhami

University of South Carolina - Moore School of Business

April M. Knill

Florida State University College of Business; Florida State University - College of Law

William L. Megginson

University of Oklahoma

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business

Date Written: June 22, 2021

Abstract

The COVID-19 pandemic has led to economic and health crises (“twin crises”) worldwide. Using a sample of firms from 73 countries over the period January to December 2020, we examine stock price reactions of multinational corporations (MNCs) and purely domestic companies (DCs) to the crisis. We find that, on average, MNCs suffer a significantly larger decline in firm value relative to DCs during the stock market crisis caused by the pandemic with notable heterogeneity in this underperformance across both industry and region. The evidence of MNC underperformance is robust to using abnormal returns, an alternative crisis window, a matched sample that accounts for differences in characteristics between MNCs and DCs, alternative model specifications, and proxies for multinationality. Further analysis on the effect of government responses on the valuation gap suggests that stringent government responses exacerbate MNCs’ underperformance. Finally, we show that a stronger financial system mitigates negative crisis returns, especially under stringent government responses, while real factors, such as the firm’s supply chain, investments in human capital, research and development exacerbate negative crisis returns. Our findings have important implications for managers of MNCs and government policymakers alike and contribute to studies on the international diversification–performance relation by demonstrating a dark side of globalization during a tail-risk event.

Keywords: Coronavirus; COVID-19; pandemic; multinational corporation; international diversification; corporate governance; financial crisis; healthcare crisis; economic performance; business efficiency; government response; government efficiency

JEL Classification: E61, F14, F23, G15, G18, I18

Suggested Citation

Guedhami, Omrane and Knill, April M. and Megginson, William L. and Senbet, Lemma W., The Dark Side of Globalization: Evidence from the Impact of COVID-19 on Multinational Companies (June 22, 2021). Journal of International Business Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3868449 or http://dx.doi.org/10.2139/ssrn.3868449

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

April M. Knill

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2242 (Phone)
301-405-0359 (Fax)

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