Risk premia in multi-national enterprises

Stefan Lutz

The North American Journal of Economics and Finance, 2013, vol. 25, issue C, 293-305

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.

Keywords: MNE; Firm valuation; DCF; CAPM; Risk premium; Transfer pricing (search for similar items in EconPapers)
JEL-codes: F2 G0 M4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Risk premia in multi-national enterprises (2012)
Working Paper: Risk premia in multi-national enterprises (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:25:y:2013:i:c:p:293-305

DOI: 10.1016/j.najef.2012.06.016

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