The increase in number of multinational corporations (MNCs) represents the globalization trend as well as the interconnectedness among countries all around the world. Both domestic and foreign earnings are believed to play an important role in the company business. However, research on the discrepancy in reactions between domestic corporations (DCs) and MNCs with regard to unstable economic conditions in home and host countries is limited. This research examines the impact of changes in Economic Policy Uncertainty (EPU) index in home country and host countries/regions on the stock performance of Japanese companies. Unbalanced panel data analysis is utilized as the methodology of this study. This study adopts the Fama-French three factor model as the based model to calculate stock returns. The result indicates that the stock returns of DCs are more negatively affected when there is an increase in Japanese EPU index, which is the home country, than MNCs. This result implies the reliance of DCs on domestic earnings as well as the ability of MNCs to diversify their earnings to lower volatility. As for Japanese MNCs, with a significant percentage of sales generated in a certain host country/region, the MNCs also react negatively to fluctuations in the EPU index in those host countries/regions. This result does not only prove the growing connections among different economies but also signifies the sensitiveness of investors to fluctuations in foreign earnings of MNCs.

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