Risk premia in multi-national enterprises |
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| Institution: | 1. University of Manchester, UK;2. Universidad Complutense de Madrid, Spain;1. Department of Finance, Western Kentucky University, Bowling Green, KY 42101, United States;2. Department of Finance, National University of Kaohsiung, Kaohsiung, Taiwan;3. Department of Finance, National Chengchi University, Taipei, Taiwan;1. Department of Cardiology, The First Affiliated Hospital, Sun Yat-Sen University, Guangzhou, China;2. Department of Obstetrics and Gynecology, The First Affiliated Hospital, Sun Yat-Sen University, Guangzhou, China;3. Department of Ultrasonography, The First Affiliated Hospital, Sun Yat-Sen University, Guangzhou, China;4. Department of Stomatology, The Third Affiliated Hospital, Sun Yat-Sen University, Guangzhou, China;1. Molecular Neurology, Research Programs Unit, University of Helsinki and Department of Neurology, Helsinki University Hospital, Helsinki, Finland;2. Department of Psychology and Logopedics, University of Helsinki, Helsinki, Finland;3. Folkhälsan Research Center, Helsinki, Finland;4. Department of General Practice and Primary Health Care, University of Helsinki and Helsinki University Hospital, Unit of General Practice, Helsinki, Finland;5. National Institute for Health and Welfare, Helsinki, Finland;6. Centre for Life Course Health Research, University of Oulu, Oulu, Finland;7. University of Helsinki, Clinicum and Helsinki University Hospital, Helsinki, Finland;8. Institute of Neuroscience, Neuropathology/Cellular Pathology, Newcastle University, Newcastle upon Tyne, UK;9. Pathology, University of Helsinki and Helsinki University Hospital, Helsinki, Finland |
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| Abstract: | The CAPM implies that investors require equity risk premia when choosing risky investments and therefore demand higher returns to equity invested if higher risk is present. This should apply to investments in independent enterprises and multi-national enterprises alike. This hypothesis is investigated by analyzing a panel of 407,000 European firms for the years 1985 to 2010. When income is set in relation to invested capital, risk measured by earnings volatility emerges as the most important stable determinant of income. Results indicate that both MNEs and independent firms regularly account for risk as a major determinant of income when pricing international goods and services. Hence international taxation rules for multi-national enterprises should account for risk premia in transfer prices and resulting profits. |
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