Corporate international diversification and risk |
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| Affiliation: | 1. Trinity Business School, Trinity College Dublin, Ireland;2. Monash Business School, Monash University, Melbourne, Australia;1. ISG, Sousse University, Bp 763, 4000 Sousse, Tunisia;2. ISG, Tunis University, Bardo, 2000 Tunis, Tunisia;1. Haile/US Bank College of Business, Northern Kentucky University, Nunn Drive, Highland Heights, KY 41099, USA;2. Department of Finance, University of Connecticut, School of Business, 2100 Hillside Road, Storrs, CT 06269-1041, USA |
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| Abstract: | This study analyzes the effects of corporate international diversification (CID) on risk. Results document a mostly positive relation between CID, as measured by four different empirical proxy variables, and equity risk. I also find that diversification increases the volatility of cash flows and earnings. There is no empirical support of a reduction in correlations between firm-level and domestic market-level cash flows of internationally diversified firms. Finally, this study shows that the risk-increasing effects of CID are stronger for firms that are in more advanced stages of the internationalization process. The latter finding would be consistent with firms expanding to more risky countries in their latter stages of CID. |
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