Firm-level internationalisation and the home bias puzzle

Abstract

The extent to which internationalising MNEs create value, and the extent to which investors can reap the benefits of firm-level internationalisation remain controversial issues. Using a multi-country dataset with over 3 million observations, we classify 1,143 firms listed on the exchanges of the G7 countries according to the geographical spread of their sales and subsidiaries. We show that more internationalised firms provide greater diversification benefits. By investing in home-based internationalised firms, investors can 'free ride' the costs and risks associated with internationalisation at the level of the firm and exhibit home bias while availing of international diversification benefits.

The international diversification benefits of U.S.‐traded equity products

“…We select firms with a strong, consistent international presence, having sales in at least four of the six continents in every year over our time period. Our findings for MNCs concur with findings by Mikhail and Shawky () and Berrill and Kearney () that firms selected by the scope of their internationalization offer substantial diversification benefits.…”

“…The period between mid-2003 and mid-2008 is noticeable for its low volatility, compared with the periods that precede and follow it, which correspond to the high-tech bubble and the 2007/ 2008 financial crisis. We compare the performance of the S&P500 with the performance of the 37 foreign 7 See Berrill and Kearney (2010) for a discussion on the exact test statistic used. country indices on an annual basis.…”

Raising the bar on the foreign portfolio to 25 per cent: Strategic implications for South African investors

“…Berrill and Kearney (2008) point out that the extent to which investors diversify internationally remains less than theory predicts as they tend to hold the majority of their financial portfolios in domestic rather than international assets.…”

“…A further competing phenomenon that has been frequently observed in the international literature is referred to as the "home-bias" effect, whereby investors invest largely in their home countries' stocks (see for example French & Poterba, 1991;Tesar & Werner 1995;Heathcote & Perri, 2007;Berrill & Kearney, 2008;Sendi & Bellalah, 2010 to name a few). Berrill and Kearney (2008) point out that the extent to which investors diversify internationally remains less than theory predicts as they tend to hold the majority of their financial portfolios in domestic rather than international assets.…”

Diversificación Internacional de Portafolios en Colombia por Medio de ETF

“…En la literatura se evidencia que los ETF ofrecen mayores beneficios de diversificación que los propios fondos de inversión convencionales locales [29]- [32]. Por su parte, Hegde y McDermott [33], atribuyen el crecimiento de los ETF a la facilidad con la que los inversionistas pueden obtener beneficios de la diversificación del portafolio a bajos costos de transacción en comparación con los portafolios de inversión en acciones.…”