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Multinational Firms Suffered Disproportionately During Pandemic, UMD Study Finds

By Pablo Suarez

Prior to the COVID-19 pandemic, the value of globalization was a given for many firms. But the crisis amplified the vulnerabilities of doing business across borders, and now, new University of Maryland research from is helping to tally the potential dark side of multinational operations.

Lemma Senbet, the William E. Mayer Chair Professor of Finance at the Robert H. Smith School of Business, worked alongside co-authors from the University of South Carolina, Florida State University and the University of Oklahoma to show that multinational companies (MNCs) experienced a significantly larger decline in firm value compared to domestic companies (DCs) during the stock market crisis spurred by the pandemic. The study was published recently in the Journal of International Business Studies.

The team studied a sample of firms from 73 countries from January to December 2020, examining the daily stock prices and fluctuations. While previous literature has suggested that in times of crisis, MNCs are better positioned to weather the storm in comparison to DCs, the opposite actually holds true, the researchers found.

During the crisis period, MNCs were shown to have roughly 1.7% lower returns. Following the crisis period, MNCs did not recover from their underperformance by the end of the sample term in December 2020. Firms operating across multiple countries and relying on international supply chains were found to be especially susceptible to the pandemic’s devastating effects.

The paper’s findings, the researchers wrote, should be of great interest to top executives of MNCs as they prepare for the next global crisis.

“As we eventually emerge from the pandemic, managers of MNCs may make structural decisions that reflect less vulnerability to large-scale crises,” the researchers wrote in the paper’s conclusion. “They may also bring some business functions that were previously outsourced within the firm itself, to maintain control over vital aspects of the firm.”

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