Globalization, international trade and the risk position of the firm: Empirical evidence from Belgium and the Netherlands

There is a widespread and growing perception that globalization, resulting in ever closer economic ties between countries and continents, has made the world riskier. One well-known example is the bankruptcy of Lehman Brothers, which plunged global financial markets into the biggest crisis since the Great Depression. Another example is Greece's excessive liabilities that caused a sovereign debt crisis that threatened the survival of the European monetary union. Moreover, the instability of currency markets in a world without a base currency poses a permanent risk to internationally trading companies. The economic crises of recent years, from the financial market crisis to the sovereign debt crisis, testify to the growing interconnectedness and vulnerability of businesses in a globalizing economy. As a result, these global economic risks have increasingly come into the crosshairs of public perception. Nevertheless, global economic mechanisms often seem inadequately understood and there remains a lack of empirical evidence regarding globalization and risk. Moreover, the potential risks of a globalizing economy at both the macro and micro level are often mistakenly considered unthinkable. As such, risk remains an important research topic for both companies and policymakers with respect to their economic decision-making in a globalizing and sometimes unstable world.

Therefore, using a cross-pollination of several areas of research, this dissertation attempts to answer the question of whether globalization and the international trade-related heterogeneity of firms affects the financial risk position of listed firms. In other words, this dissertation examines whether publicly traded companies, which operate globally by participating in international trade, face more risk than companies that are less globalized or even refrain from international trade. However, risk is a broad concept of which there are several types such as operational risk, systematic risk, idiosyncratic risk, systemic risk, exchange rate risk, etc. Therefore, the focus of this thesis is limited to two specific types of risk, specifically, systemic risk and exchange rate exposure. As such, the overall research goal can be limited to whether firms that are global by participating in international trade are more systemically risky or experience more exchange rate exposure than firms that are less globalized or even refrain from international trade. In doing so, this thesis fills in some of the existing gaps in the literature. The general research question will be answered through three chapters.

Cauwenberge, A. van (2019). Globalization, international trade and the risk position of the firm: Empirical evidence from Belgium and the Netherlands. Dissertation, Hasselt University, handle:1942/28546.