Corporate international diversification and risk

Alain A. Krapl

International Review of Financial Analysis, 2015, vol. 37, issue C, 1-13

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.

Keywords: Corporate international diversification; Cash flow volatility; Systematic risk; Earnings volatility (search for similar items in EconPapers)
JEL-codes: F3 F39 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:37:y:2015:i:c:p:1-13

DOI: 10.1016/j.irfa.2014.11.005

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