Using stock market data for 297 UK firms and bookmakers' Brexit odds during the referendum campaign, researchers were able to estimate the financial impact of Brexit. It's the first study of its kind showing the direct impact of political uncertainty related to Brexit on all major British companies.
The findings, published in the Journal of Banking and Finance, confirm that companies with a UK focus are most affected, while multinational companies prove to be more resilient due to operating across a diverse set of countries which provides more stability.
In the immediate aftermath of the referendum, prices of companies in the bottom quarter of the internationalisation ranking dropped by 21 per cent, on average, while those in the top quarter dropped by a more modest eight per cent.
Of the companies analysed, those in the financial sector and in consumer-oriented sectors - such as housebuilders, retail, travel and leisure firms - are hardest hit.
Analysis showed that larger firms are more affected by Brexit, as are the fastest-growing firms, while there was some evidence that more profitable firms feel less of an impact on the stock price.
Experts have warned that a no-deal Brexit deal will cause further uncertainty and, ultimately, may lead to companies moving their business activity overseas to ensure stability.
Dr Piotr Korczak, Reader in Finance in the School of Economics, Finance and Management at the University of Bristol, led the research.
He said: "The referendum result started a period of unprecedented political uncertainly: it is difficult for companies to plan, investment is put on hold, and consumers cut spending. Ultimately, the economy slows down while everyone waits to see what will happen.
"We would expect to see the same trends if there’s a no-deal Brexit. This prolonged uncertainty is likely to see the value of UK companies decrease even further.
"Most affected are likely to be financial firms and consumer-facing sectors operating mainly in the domestic market. Firms with international operations should be less affected.
"According to industry reports and surveys, firms prepare for adverse effects of Brexit by increasing international operations - opening foreign subsidiaries or relocating assets and staff abroad – which should act as a good 'insurance policy', as our research has shown.
"Unfortunately, this will have an adverse effect on the local labour market and individual company’s activities in the UK."
Researchers estimated each company's Brexit exposure in two ways: as sensitivity of its stock returns to changes in the probability of a Brexit vote calculated from bookmakers’ odds during the referendum campaign, and as its stock price reaction to the referendum result. Each firm’s internationalisation is estimated using a novel measure based on the number of foreign countries the firm mentioned in its annual report.
Paper
'Political Uncertainty Exposure of Individual Companies: The Case of the Brexit Referendum' by Paula Hill, Adriana Korczak and Piotr Korczak in the Journal of Banking and Finance