REP Research Seminar - Presenting in person - Dr Zongyuan Li, University of Galway. Title: "Firm Locations and Market Reactions to Regional Shocks: Insight from the Brexit Referendum."

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Abstract:

Using the Brexit referendum as a natural experiment, this study explores how a firm’s location choice moderates its stock price reactions to regional shocks. We focus on real estate investment trusts (REITs) due to their detailed property holdings disclosures, which enable precise measurement of regional exposure. The results show that domestically incorporated local firms (UK onshore REITs) experienced a broad, market-wide abnormal price decline of −11.01% following the unexpected referendum outcome, regardless of geographic diversification, which is consistent with herding theory. In contrast, abnormal returns for foreign firms (EU REITs) were tied to firm-specific UK exposure, without showing the same market-wide decline. Further channel analysis indicates that the exposure-dependent declines stemmed from information disadvantages compared with domestic firms, leading foreign firms to hold crisis-prone, inferior UK properties. Finally, evidence from offshore incorporated local firms (UK offshore REITs) indicates that offshore incorporation effectively mitigates both effects. These findings highlight the moderating role of location choices for multinational enterprises in their stock resilience to regional shocks.

Bio:

Zongyuan Li is Lecturer in Financial Economics and Technology at the J.E. Cairnes School of Business and Economics. His primarily research interests lie in financial economics and political economics, focusing on 1) the effects of financial regulation and political uncertainties on companies, particularly in highly regulated banking and real estate industries, and 2) how companies employ various mechanisms to bypass government regulations and mitigate geopolitical risks.