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Deglobalization and the value of geographic diversification: evidence from Brexit

Tunyi Tunyi Abongeh Orcid Logo, Tanveer Hussain Orcid Logo, Geofry Areneke

International Journal of Managerial Finance

Swansea University Author: Tunyi Tunyi Abongeh Orcid Logo

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DOI (Published version): 10.1108/ijmf-12-2022-0564

Abstract

Purpose: This paper aims to explore the value of geographic diversification in the context of deglobalization, drawing evidence from a quasi-natural experiment – the Brexit referendum that took place on 23 June 2016 in the UK. Design/methodology/approach: This study applies an event study methodolog...

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Published in: International Journal of Managerial Finance
ISSN: 1743-9132
Published: Emerald 2024
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URI: https://cronfa.swan.ac.uk/Record/cronfa65112
first_indexed 2023-11-26T11:19:05Z
last_indexed 2024-11-25T14:15:24Z
id cronfa65112
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Design/methodology/approach: This study applies an event study methodology to estimate the impact of the Brexit vote on a cross-section of firms with varying levels of geographic diversification &#x2013; undiversified UK firms, UK firms with significant operations in the European Union (EU) and globally diversified UK firms. This study deploys a Heckman two-stage regression approach to address sample selection bias. Findings: This study finds that undiversified UK firms experienced negative cumulative abnormal returns (CARs) around the Brexit referendum. The value of UK firms with majority sales within the UK declined by 0.9 percentage points, on average, in the three days centred on the Brexit referendum. In contrast, UK firms that are globally diversified, with the majority of sales within the EU are unaffected, while diversified firms in the rest of the world generated positive CARs of 1.8 percentage points over the same period. These results are robust to firm characteristics, selection bias and alternative measures of CARs and diversification. Research limitations/implications: This study is subject to some limitations that open avenues for future work. There are a few available proxies of diversification and further work on developing other proxies is much needed. Further work may also examine the long-term impact of diversification on UK firms. This study considered Brexit as a quasi-natural experiment, and this study could be applied to other deglobalization events like COVID-19 and can enhance the generalizability of diversification strategy in the deglobalized world. Findings may stimulate future work to explore how another form of diversification &#x2013; product diversification has affected firm returns around Brexit. Finally, this study has focused on the UK as its base case. It may be interesting to corroborate the findings by exploring the impact of Brexit on European firms, who hitherto Brexit, had some operations in the UK. Practical implications: This work offers some insights for policymakers and regulators around the impact of deglobalization on local firms. Findings suggest that these trends significantly negatively impact the most vulnerable firms (smaller firms with less global reach), while their larger counterparts with significant global reach might be insulated. This finding is important for determining the nature of support needed by different firms in times of deglobalization. The work also offers insights to managers of firms operating in countries where there are real prospects of deglobalization. Specifically, the work highlights the importance of geographic diversification when free movement of goods, services and people is restricted. Originality/value: This study shows that a certain group of globally diversified firms earned significantly higher returns from the prospect of the UK leaving the EU, thereby highlighting the value of geographic diversification in a time of deglobalization.</abstract><type>Journal Article</type><journal>International Journal of Managerial Finance</journal><volume/><journalNumber/><paginationStart/><paginationEnd/><publisher>Emerald</publisher><placeOfPublication/><isbnPrint/><isbnElectronic/><issnPrint>1743-9132</issnPrint><issnElectronic/><keywords>Deglobalization, Geographic diversification, Brexit referendum, Event studies, European Union</keywords><publishedDay>7</publishedDay><publishedMonth>3</publishedMonth><publishedYear>2024</publishedYear><publishedDate>2024-03-07</publishedDate><doi>10.1108/ijmf-12-2022-0564</doi><url>http://dx.doi.org/10.1108/ijmf-12-2022-0564</url><notes/><college>COLLEGE NANME</college><department>Management School</department><CollegeCode>COLLEGE CODE</CollegeCode><DepartmentCode>CBAE</DepartmentCode><institution>Swansea University</institution><apcterm>Not Required</apcterm><funders/><projectreference/><lastEdited>2024-05-02T10:21:18.3451871</lastEdited><Created>2023-11-26T11:18:37.3034265</Created><path><level id="1">Faculty of Humanities and Social Sciences</level><level id="2">School of Management - Accounting and Finance</level></path><authors><author><firstname>Tunyi</firstname><surname>Tunyi Abongeh</surname><orcid>0000-0002-5761-931X</orcid><order>1</order></author><author><firstname>Tanveer</firstname><surname>Hussain</surname><orcid>0000-0003-4423-3087</orcid><order>2</order></author><author><firstname>Geofry</firstname><surname>Areneke</surname><order>3</order></author></authors><documents/><OutputDurs/></rfc1807>
spelling 2024-05-02T10:21:18.3451871 v2 65112 2023-11-26 Deglobalization and the value of geographic diversification: evidence from Brexit eefe2792c8eed5b49feede33981dfa53 0000-0002-5761-931X Tunyi Tunyi Abongeh Tunyi Tunyi Abongeh true false 2023-11-26 CBAE Purpose: This paper aims to explore the value of geographic diversification in the context of deglobalization, drawing evidence from a quasi-natural experiment – the Brexit referendum that took place on 23 June 2016 in the UK. Design/methodology/approach: This study applies an event study methodology to estimate the impact of the Brexit vote on a cross-section of firms with varying levels of geographic diversification – undiversified UK firms, UK firms with significant operations in the European Union (EU) and globally diversified UK firms. This study deploys a Heckman two-stage regression approach to address sample selection bias. Findings: This study finds that undiversified UK firms experienced negative cumulative abnormal returns (CARs) around the Brexit referendum. The value of UK firms with majority sales within the UK declined by 0.9 percentage points, on average, in the three days centred on the Brexit referendum. In contrast, UK firms that are globally diversified, with the majority of sales within the EU are unaffected, while diversified firms in the rest of the world generated positive CARs of 1.8 percentage points over the same period. These results are robust to firm characteristics, selection bias and alternative measures of CARs and diversification. Research limitations/implications: This study is subject to some limitations that open avenues for future work. There are a few available proxies of diversification and further work on developing other proxies is much needed. Further work may also examine the long-term impact of diversification on UK firms. This study considered Brexit as a quasi-natural experiment, and this study could be applied to other deglobalization events like COVID-19 and can enhance the generalizability of diversification strategy in the deglobalized world. Findings may stimulate future work to explore how another form of diversification – product diversification has affected firm returns around Brexit. Finally, this study has focused on the UK as its base case. It may be interesting to corroborate the findings by exploring the impact of Brexit on European firms, who hitherto Brexit, had some operations in the UK. Practical implications: This work offers some insights for policymakers and regulators around the impact of deglobalization on local firms. Findings suggest that these trends significantly negatively impact the most vulnerable firms (smaller firms with less global reach), while their larger counterparts with significant global reach might be insulated. This finding is important for determining the nature of support needed by different firms in times of deglobalization. The work also offers insights to managers of firms operating in countries where there are real prospects of deglobalization. Specifically, the work highlights the importance of geographic diversification when free movement of goods, services and people is restricted. Originality/value: This study shows that a certain group of globally diversified firms earned significantly higher returns from the prospect of the UK leaving the EU, thereby highlighting the value of geographic diversification in a time of deglobalization. Journal Article International Journal of Managerial Finance Emerald 1743-9132 Deglobalization, Geographic diversification, Brexit referendum, Event studies, European Union 7 3 2024 2024-03-07 10.1108/ijmf-12-2022-0564 http://dx.doi.org/10.1108/ijmf-12-2022-0564 COLLEGE NANME Management School COLLEGE CODE CBAE Swansea University Not Required 2024-05-02T10:21:18.3451871 2023-11-26T11:18:37.3034265 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Tunyi Tunyi Abongeh 0000-0002-5761-931X 1 Tanveer Hussain 0000-0003-4423-3087 2 Geofry Areneke 3
title Deglobalization and the value of geographic diversification: evidence from Brexit
spellingShingle Deglobalization and the value of geographic diversification: evidence from Brexit
Tunyi Tunyi Abongeh
title_short Deglobalization and the value of geographic diversification: evidence from Brexit
title_full Deglobalization and the value of geographic diversification: evidence from Brexit
title_fullStr Deglobalization and the value of geographic diversification: evidence from Brexit
title_full_unstemmed Deglobalization and the value of geographic diversification: evidence from Brexit
title_sort Deglobalization and the value of geographic diversification: evidence from Brexit
author_id_str_mv eefe2792c8eed5b49feede33981dfa53
author_id_fullname_str_mv eefe2792c8eed5b49feede33981dfa53_***_Tunyi Tunyi Abongeh
author Tunyi Tunyi Abongeh
author2 Tunyi Tunyi Abongeh
Tanveer Hussain
Geofry Areneke
format Journal article
container_title International Journal of Managerial Finance
publishDate 2024
institution Swansea University
issn 1743-9132
doi_str_mv 10.1108/ijmf-12-2022-0564
publisher Emerald
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
url http://dx.doi.org/10.1108/ijmf-12-2022-0564
document_store_str 0
active_str 0
description Purpose: This paper aims to explore the value of geographic diversification in the context of deglobalization, drawing evidence from a quasi-natural experiment – the Brexit referendum that took place on 23 June 2016 in the UK. Design/methodology/approach: This study applies an event study methodology to estimate the impact of the Brexit vote on a cross-section of firms with varying levels of geographic diversification – undiversified UK firms, UK firms with significant operations in the European Union (EU) and globally diversified UK firms. This study deploys a Heckman two-stage regression approach to address sample selection bias. Findings: This study finds that undiversified UK firms experienced negative cumulative abnormal returns (CARs) around the Brexit referendum. The value of UK firms with majority sales within the UK declined by 0.9 percentage points, on average, in the three days centred on the Brexit referendum. In contrast, UK firms that are globally diversified, with the majority of sales within the EU are unaffected, while diversified firms in the rest of the world generated positive CARs of 1.8 percentage points over the same period. These results are robust to firm characteristics, selection bias and alternative measures of CARs and diversification. Research limitations/implications: This study is subject to some limitations that open avenues for future work. There are a few available proxies of diversification and further work on developing other proxies is much needed. Further work may also examine the long-term impact of diversification on UK firms. This study considered Brexit as a quasi-natural experiment, and this study could be applied to other deglobalization events like COVID-19 and can enhance the generalizability of diversification strategy in the deglobalized world. Findings may stimulate future work to explore how another form of diversification – product diversification has affected firm returns around Brexit. Finally, this study has focused on the UK as its base case. It may be interesting to corroborate the findings by exploring the impact of Brexit on European firms, who hitherto Brexit, had some operations in the UK. Practical implications: This work offers some insights for policymakers and regulators around the impact of deglobalization on local firms. Findings suggest that these trends significantly negatively impact the most vulnerable firms (smaller firms with less global reach), while their larger counterparts with significant global reach might be insulated. This finding is important for determining the nature of support needed by different firms in times of deglobalization. The work also offers insights to managers of firms operating in countries where there are real prospects of deglobalization. Specifically, the work highlights the importance of geographic diversification when free movement of goods, services and people is restricted. Originality/value: This study shows that a certain group of globally diversified firms earned significantly higher returns from the prospect of the UK leaving the EU, thereby highlighting the value of geographic diversification in a time of deglobalization.
published_date 2024-03-07T06:08:13Z
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score 11.070929

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