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Are Large Multinational Companies Undervalued? Emerging Markets Perspective

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  • Kadish, Peter
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    Abstract

    The relationship between emerging economies and developed economies via multinational corporations is investigated. Using newly constructed database, it is shown that corporate expansion during the past decade has been dominated by M&As and characterized by developed countries financial institutions’ penetration into the emerging economies. European financial companies have experienced the fastest growth rates and together with US firms account for about 80% of the world’s largest enterprises. This expansion has resulted in cheap financing for small enterprises with local knowledge of the market in emerging economies that has resulted in their stocks’ outperformance since the beginning of the previous credit easing cycle (2001). As banking industry as a funding source is no longer available for small enterprises in emerging markets, this trend is expected to reverse. On the contrary, large multinational companies have access to cheap financing at home (where securitization markets are more developed) and internationally (economies of scale). This should allow large multinational enterprises to expand further in size by increasing their market share. Implications for the US economy are presented in Appendix.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24315.

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    Date of creation: Aug 2010
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    Handle: RePEc:pra:mprapa:24315

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    Keywords: Multinational companies; M&A; FDI; Globalization;

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    1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5220, C.E.P.R. Discussion Papers.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4923, C.E.P.R. Discussion Papers.
    3. Diego A. Comin & Norman Loayza & Farooq Pasha & Luis Serven, 2009. "Medium Term Business Cycles in Developing Countries," Harvard Business School Working Papers, Harvard Business School 10-029, Harvard Business School, revised Sep 2010.
    4. Francis , Bill B & Hasan , Iftekhar & Sun , Xian, 2006. "Financial market integration and the value of global diversification: evidence from US acquirers in cross-border mergers and acquisitions," Research Discussion Papers, Bank of Finland 24/2006, Bank of Finland.
    5. Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports, Federal Reserve Bank of New York 295, Federal Reserve Bank of New York.
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