Essays on Aspects of International Finance: Cross-Border Asset Sales and Return Premium on Multinational Firms
Abstract
This dissertation consists of two independent chapters. The first chapter examines the role of foreign institutional investors in the corporate asset sales market. Using data in 44 developed and emerging markets over 2001–2016, I document that foreign institutional ownership is positively related to the probability of cross-border asset sales. Compared to domestic asset sales, cross-border asset sales deliver higher abnormal returns for shareholders of the selling firms. These effects are robust to a variety of control variables and fixed effects. The documented effects are stronger in smaller firms and are driven by independent institutional investors. The evidence together suggests that foreign institutions facilitate cross-border asset sales by reducing information asymmetry and acting as monitors. The second chapter (coauthored with Yeejin Jang and Xiaoyan Zhang) studies the stock return difference between multinational firms and domestic firms. Using monthly returns of 37,854 stocks in 23 developed countries over 1990–2015, we document that multinational companies earn higher returns than domestic companies by 24 basis points per month. This finding is further confirmed by using a sample of 18,996 U.S. firms over 1973–2015. We find that known asset pricing anomalies cannot fully explain the magnitude of the multinational premium. We further explore three potential channels for the return premium: foreign operational costs, information processing costs, and investor preference. The return premium is more pronounced for multinationals operating in countries with lower GDP growth, poorer financial development, lower R&D export, higher labor cost, and in countries that are geographically more distant to their home countries. Moreover, the return premium is higher in countries with less stringent disclosure requirements and when investors exhibit stronger demand for local stocks.
Degree
Ph.D.
Advisors
McConnell, Purdue University.
Subject Area
Finance
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