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Small Companies Suffer Most in U.S. from Financial Crisis Overseas

Despite little exposure to the global market, small U.S. companies suffer more than big ones during international financial crises, new research finds.

A study of the reaction by the United States stock markets to emerging market crises shows that investors flee to the perceived safety of big companies and shed stocks of smaller ones.

David Berger, an assistant professor of finance at Oregon State University who was the study's author, said the results were unexpected and show that just because someone invests locally doesn’t mean he or she will be protected from the dangers of the global market.

Investors see these big blue chip stocks as the safer ones and small, R&D-intensive stocks, for example, as riskier. So the stock of a smaller domestic company could take a hit because of an international shock,” Berger said in a prepared statement.

Berger said the study's findings have important implications for investors, even those who tend to invest predominantly in the domestic market.

“Because investors started dumping smaller stocks in favor of safer, larger ones, the irony is that larger multinational corporations potentially see positive benefits during international crises," Berger said.

The study looked at almost 20 years of data covering eight large, emerging market crashes. The results appear in the current issue of the Global Finance Journal.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.