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Foreign investments and firm risk: Evidence from Germany

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  • Likitwongkajon, Napaporn
  • Vithessonthi, Chaiporn

Abstract

Using a sample of publicly traded nonfinancial firms in Germany from 2000 to 2020, we empirically test whether the share of foreign investments positively affects firm risk and the cost of debt. Although the share of foreign investments is positively related to operating risk, it is not related to systematic risk, idiosyncratic risk, or industry-adjusted operating risk. Furthermore, the share of foreign investments is unrelated to the cost of debt or firm performance. If the realized firm risk adequately represents the expected firm risk, our results suggest no relationship between the degree of foreign investments and the expected firm risk. As expected, we find a positive relationship between firm risk and the cost of debt.

Suggested Citation

  • Likitwongkajon, Napaporn & Vithessonthi, Chaiporn, 2024. "Foreign investments and firm risk: Evidence from Germany," Global Finance Journal, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:glofin:v:59:y:2024:i:c:s1044028324000036
    DOI: 10.1016/j.gfj.2024.100931
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    More about this item

    Keywords

    Foreign investments; Firm risk; Germany; The cost of debt;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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