Risk change during crises: How do purely local companies differ from cross-listed firms? Evidence from the European crisis of 2010–2012

• We examine changes in risk of firms in five European countries.
• We compare the shift in risk to the risk to cross-listed firms.
• We find that total risk increases for both cross-listed and domestic firms.
• We find that systematic risk increases only for the cross-listed companies.
• The jump in risk is related to different factors for the two types of companies.

The 2010–2012 Greek crisis that spread to Portugal, Spain, Italy, and Ireland led to a significant risk increase both in terms of systematic and total risk for the firms operating in the five weakest economies of the European Union. A comparison of the risk profile change in the strictly EU firms and the cross-listed firms (from the same five countries) on Nasdaq and NYSE shows that there is a difference in the risk change for the purely domestic companies relative to similar cross-listed firms. Furthermore, during the crisis, the total risk increase can be explained by the underlying accounting performance for the strictly local companies but not for the cross-listed firms. This finding does not hold for non-crisis times during which the financial performance of cross-listed firms explains the risk profile of those firms.