Abstract
This study provides a comparative analysis of the risk-return performance of US MNEs and US DMCs on the basis of both aggregate and segmental samples. It covers the firms from the Fortune listing of the 500 largest US industrial firms using a ten-industry classification. Several accounting and market measures are used as proxy variables for risk and profitability. To analyse the data and test the hypotheses, the paired difference test is employed to find statistically significant differences between them.
If a firm reduces the variability of its profits, then the value of its shares will increase and, as a consequence, the wealth of shareholders will be enhanced. The results show that the MNEs, on the average, have outperformed their domestic counterparts in both profitability and risk. This implies that the capital market should differentiate between its valuation of MNE and DMC shares. Foreign activities by MNEs should therefore provide their shareholders with risk-return opportunities superior to those available to shareholders of DMCs. Investors may be expected to consider MNEs as a superior investment vehicle and reward their foreign operations.
Get full access to this article
View all access options for this article.