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The Changing Risk Profile Of U.S.‐Based Multinational Corporations Exposed To European Community Markets

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  • Karen Chambliss
  • Jeff Madura
  • Francis W. Wright

Abstract

In this study we investigate the risk characteristics of U.S.‐based multinational corporations (MNCs) that conduct much of their business in the European Community. Specifically, we assess the efficacy of a multifactor return‐generating model that incorporates the influence of U.S. and European markets. Our results demonstrate that the European market is a significant factor in explaining the time‐series behavior of MNC returns, and that the European market influence is stronger since the adoption of the Single European Act. In addition, the reduction in the sensitivity of MNCs to the U.S. market since the Single European Act is cross‐sectionally associated with changes in their proportional levels of European sales. The results suggest that the returns of other MNCs expanding into increasingly integrated regional blocs may experience similar changes in their systematic risk profile.

Suggested Citation

  • Karen Chambliss & Jeff Madura & Francis W. Wright, 1994. "The Changing Risk Profile Of U.S.‐Based Multinational Corporations Exposed To European Community Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(1), pages 133-146, March.
    • Handle: RePEc:bla:jfnres:v:17:y:1994:i:1:p:133-146
    DOI: 10.1111/j.1475-6803.1994.tb00179.x
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    Cited by:

    1. Martin, Anna D. & Mauer, Laurence J., 2003. "Transaction versus economic exposure: which has greater cash flow consequences?," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 437-449.
    2. Joliet, Robert & Hubner, Georges, 2008. "Corporate international diversification and the cost of equity: European evidence," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 102-123, February.
    3. Christin Höge-Junge & Stefan Eckert, 2024. "Multinationality and systematic risk: a literature review and meta-analysis," Management Review Quarterly, Springer, vol. 74(1), pages 377-414, February.

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