The process of globalization leads to the emergence of multinational firms. Multinational firms to a large extent have been successful as a result of the spread of production, communication, technology and knowledge sharing across the world. The speed at which trade takes place across the globe and the complexity and size of inter relationships that have emerged from such trade can be linked to risks that are prominent for multinational firms. These firms operate on a global level for increasing their profitability and at the same time to lower their risk exposure since diversification across markets is expected to enhance efficient technology and lower process costs. This diversification tends to reduce the overall fluctuation in revenue and earnings of these firms. The usage of financial products such as derivatives additionally helps them to hedge their firm's risk exposures.
Globalization implies that multinational firms have new challenges such as global crisis and currency devaluations and operational exposures in different countries may not imply similar risk content to such firms. Multinational firms are subject to an array of regulatory and legal system due to their presence in several countries. This imposes a unique risk to multinationals in terms of their vulnerability to lawsuits that global policies may not cover. The exposure of currency risk, operational risk, litigation risk and market risk of multinational firms operating in India has been examined using sample firms listed in the National Stock Exchange. The risk management practices of these firms are then related to their risk exposure. This research was conducted to understand the effect of risk management process on firms’ globalization practices. Using a multifactor model the relationship between investor values and firms’ risk exposure has been established to estimate the effect of globalization on multinational firm performance.
|Keywords:||Risk Exposure, Currency Risk, Litigation Risk, Operational Risk, Market Risk|
Associate Professor, Department of Management Studies, Indian Institute of Technology Madras, Chennai, Tamilnadu, India
Registrar i/c, Professor and Head, Department of Commerce, University of Madras, Chennai, Tamilnadu, India
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