Emerging market multinationals : an analysis of performance and risk characteristics

Aybar, C. Bulent
Thirunavukkarasu, Arul
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The Haworth Press, Inc.
This study explores the risk and performance characteristics of emerging market multinationals (EMNCs). We use a sample composed of 79 EMNCs from 15 countries located in Africa, Asia, Eastern Europe-Russia, and Latin America. Our risk and performance analyses are based on monthly share price returns collected over 1996-2003 period and annual accounting data. We find that EMNCs on average perform better than their respective country market indices, a widely used EM benchmark, S&P500 and, global market index (MSCI-World) during the period of analysis. Our sample firms on average earn 13.21% return on assets, 8.97% return on equity, and 11.96% return on invested capital. We also find that EMNC returns are highly volatile, and despite some level of diversification achieved by EMNCs, their returns remain highly sensitive to local market shocks. The cross-sectional analysis of the determinants of the performance of the EMNCs reveals that leverage and systematic risk are the most important factors, followed by size. Our analysis indicates that performance is not affected by the degree of internationalization and EMNC investments in developed markets have a positive impact on the value. Finally, our results indicate that EMNCs in less risky emerging markets enjoy higher firm value.
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