Risk Exposure of Multinational Firms in India

By Madhumathi Rajendran and Ranganatham Madabhushi.

Published by The Global Studies Journal

Format Price
Article: Print $US10.00
Article: Electronic $US5.00

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

Global Studies Journal, Volume 2, Issue 1, pp.11-24. Article: Print (Spiral Bound). Article: Electronic (PDF File; 1.199MB).

Dr. Madhumathi Rajendran

Associate Professor, Department of Management Studies, Indian Institute of Technology Madras, Chennai, Tamilnadu, India

Dr. R.Madhumathi is presently working as associate professor in the Department of Management Studies at Indian Institute of Technology Madras. She graduated from the Madras University and after her post graduation in commerce from the Madras University, joined the Department of Commerce, University of Madras, Chennai as a research scholar. Her research thesis on Commercial Banks and Industrial Lending explored the application of an expert system to help the bankers in their loan appraisal process. She also has post doctoral research experience from the Department of Commerce, University of Madras as a research associate in the topic Investor Behavior. She has wide teaching and research experience and specializes in Accounting and Finance. Her experience with the Institute of Chartered Accountants of India, New Delhi as a senior education officer enables her to view accounting applications in a broader perspective. She has published research articles in varied journals.

Prof. Ranganatham Madabhushi

Registrar i/c, Professor and Head, Department of Commerce, University of Madras, Chennai, Tamilnadu, India

Prof. M.Ranganatham is currently Registrar i/c. He has been occupying the post of professor and Head of the Department of Commerce in the University of Madras, Chennai. He has about 20 years of postgraduate teaching and research experience. He has guided about 65 M.Phil and 11 Ph.D. students. He has published a number of research papers in national journals and participated in several national and international seminars. His areas of interests are financial markets and services, security analysis and portfolio management, risk management and insurance and quantitative methods.

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