Using the Capital Assets Pricing Model for risk management—A tool for multinational corporation managers

✍ Scribed by Miki Malul; Mosi Rosenboim; Shlomo Yedidia Tarba

• Publisher: John Wiley and Sons
• Year: 2011
• Tongue: English
• Weight: 215 KB
• Volume: 53
• Category: Article
• ISSN: 1096-4762
• DOI: 10.1002/tie.20397

✦ Synopsis

Abstract

In this article, using a theoretical model and empirical analysis, we show how multinational corporations (MNCs) can utilize the fundamentals of the Capital Assets Pricing Model (CAPM) to formulate a strategic risk management in a global economy. We show that MNCs with branches all over the world, specifically those that specialize in nontradable goods (e.g., McDonald's), should consider each country's beta as the appropriate measure of the relevant risk attached to the location in the country. Finally, using data from the most recent world economic crisis (the subprime crisis), we show that during a world economic crisis the loss of growth will be significantly higher in countries with higher betas, and lower in those with lower betas. © 2011 Wiley Periodicals, Inc.