The Multinational Return Premium: Investor's Perspective

Using monthly returns of 18,996 U.S. stocks over 1973-2015 and 23,965 stocks in 22 countries over 1990-2015, we find that multinational companies earn significantly higher returns than domestic companies by 23bps per month. We further investigate whether the return difference is driven by risk or known asset pricing anomalies, and find that none of them can fully explain the return premium of multinationals. The magnitude of the multinational return premium depends on the location of foreign operations. The return premium is more prominent for multinationals operating in countries where higher costs are incurred - countries with lower GDP growth, lower private credit, lower R&D export, higher labor cost, and larger geographic distance.