Pound for Pound: An Event Study Analysis of the Differential Effect of Brexit on British Firms

Abstract

On June 23, 2016, a majority of British citizens voted for “Brexit”—that is, for their government to negotiate the country’s departure from the European Union. In this thesis, I employ the event study methodology to analyze how firm characteristics explain the abnormal stock returns of various British manufacturing firms following the referendum. To do so, I define a vector of firm characteristics as potential explanatory variables that describe a firm’s exposure to increased trade barriers between the United Kingdom and the European Union. In keeping with the predictions of recent international trade theory, I find conclusive evidence that large firms with a small subsidiary presence in the European Union are the most likely to be harmed by Brexit. To a lesser extent, I observe that firms that are more exposed to the European Union for exports and more reliant on the European Union for imported inputs are more likely to be harmed by Brexit.