IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Does multinationality lead to value enhancement? An empirical examination of publicly listed corporations from Germany

  • Eckert, Stefan
  • Dittfeld, Marcus
  • Muche, Thomas
  • Rässler, Susanne
Registered author(s):

    We analyse the impact of multinationality on shareholder value in the case of German firms for the time span from 1990 to 2006. Based on a sample of 13,130 firm-year observations, we find that multinational companies perform worse in terms of shareholder value than domestic companies. This relationship remains stable even after controlling for industrial diversification. However, using a multivariate regression model, the impact of multinationality on shareholder value turns out to be positive. Obviously, the relationship between multinationality and shareholder value seems to be a classical example of Simpson's paradox. Therefore, bivariate analysis of the effects of multinationality on shareholder value must be considered as methodologically inappropriate. We find that the effect of multinationality on shareholder value depends on the existence of intangible assets either related to research and development or on the existence of intangible assets related to marketing and management skills. Hence, our findings support the results of Morck and Yeung (1991). Furthermore, our findings tend to support the view that the effect of mulinationality depends on the potential to realize economies of scale. The implication is that multinationality is not a value in itself. The multinational company has to have either intangible assets that can be capitalized abroad or the potential to realize economies of scale through internationalization in order for multinationality to lead to value enhancement.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0969593110000363
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal International Business Review.

    Volume (Year): 19 (2010)
    Issue (Month): 6 (December)
    Pages: 562-574

    as
    in new window

    Handle: RePEc:eee:iburev:v:19:y:2010:i:6:p:562-574
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description

    Order Information: Postal: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/bibliographic
    Web: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/bibliographic

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. " Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-60, March.
    2. Protiti Dastidar, 2009. "International corporate diversification and performance: Does firm self-selection matter?," Journal of International Business Studies, Palgrave Macmillan, vol. 40(1), pages 71-85, January.
    3. Raghuram Rajan & Henry Servaes & Luigi Zingales, . "The Cost of Diversity: The Diversification Discount and Inefficient Investment," CRSP working papers 463, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    4. Sattar A. Mansi & David M. Reeb, 2002. "Corporate Diversification: What Gets Discounted?," Journal of Finance, American Finance Association, vol. 57(5), pages 2167-2183, October.
    5. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
    6. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    7. Seung-Hyun Lee & Mona Makhija, 2009. "The effect of domestic uncertainty on the real options value of international investments," Journal of International Business Studies, Palgrave Macmillan, vol. 40(3), pages 405-420, April.
    8. Markides, Constantinos & Oyon, Daniel, 1998. "International acquisitions:: Do they create value for shareholders?," European Management Journal, Elsevier, vol. 16(2), pages 125-135, April.
    9. Allen Michel & Israel Shaked, 1986. "Multinational Corporations vs Domestic Corporations: Financial Performance and Characteristics," Journal of International Business Studies, Palgrave Macmillan, vol. 17(3), pages 89-100, September.
    10. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    11. Morck, Randall & Yeung, Bernard, 1991. "Why Investors Value Multinationality," The Journal of Business, University of Chicago Press, vol. 64(2), pages 165-87, April.
    12. Linda Allen & Christos Pantzalis, 1996. "Valuation of the operating Flexibility of Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan, vol. 27(4), pages 633-653, December.
    13. Jean-Fran�ois Hennart, 2009. "Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets," Journal of International Business Studies, Palgrave Macmillan, vol. 40(9), pages 1591-1591, December.
    14. Gordon M. Bodnar & Charles Tang & Joseph Weintrop, 1997. "Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification," NBER Working Papers 6224, National Bureau of Economic Research, Inc.
    15. Jan Johanson & Jan-Erik Vahlne, 2009. "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership," Journal of International Business Studies, Palgrave Macmillan, vol. 40(9), pages 1411-1431, December.
    16. Verbeke, Alain & Brugman, Paul, 2009. "Triple-testing the quality of multinationality-performance research: An internalization theory perspective," International Business Review, Elsevier, vol. 18(3), pages 265-275, June.
    17. Errunza, Vihang R & Senbet, Lemma W, 1984. " International Corporate Diversification, Market Valuation, and Size-Adjusted Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 727-43, July.
    18. Chandra S Mishra & David H Gobeli, 1998. "Managerial Incentives, Internalization, and Market Valuation of Multinational Firms," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 583-597, September.
    19. Doukas, John, 1995. "Overinvestment, Tobin's q and gains from foreign acquisitions," Journal of Banking & Finance, Elsevier, vol. 19(7), pages 1285-1303, October.
    20. Constatinos C Markides & Christopher D Ittner, 1994. "Shareholder Benefits from Corporate International Diversification: Evidence from U.S. International Acquisitions," Journal of International Business Studies, Palgrave Macmillan, vol. 25(2), pages 343-366, June.
    21. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
    22. Agmon, Tamir & Lessard, Donald R, 1977. "Investor Recognition of Corporate International Diversification," Journal of Finance, American Finance Association, vol. 32(4), pages 1049-55, September.
    23. Peter J Buckley, 2002. "Is the International Business Research Agenda Running Out of Steam?," Journal of International Business Studies, Palgrave Macmillan, vol. 33(2), pages 365-373, June.
    24. David J. Denis & Diane K. Denis & Keven Yost, 2002. "Global Diversification, Industrial Diversification, and Firm Value," Journal of Finance, American Finance Association, vol. 57(5), pages 1951-1979, October.
    25. Amar Gande & Christoph Schenzler & Lemma W Senbet, 2009. "Valuation effects of global diversification," Journal of International Business Studies, Palgrave Macmillan, vol. 40(9), pages 1515-1532, December.
    26. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1989. "Do Managerial Objectives Drive Bad Acquisitions?," NBER Working Papers 3000, National Bureau of Economic Research, Inc.
    27. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
    28. Errunza, Vihang R & Senbet, Lemma W, 1981. "The Effects of International Operations on the Market Value of the Firm: Theory and Evidence," Journal of Finance, American Finance Association, vol. 36(2), pages 401-17, May.
    29. Alan M Rugman, 1976. "Risk Reduction by International Diversification," Journal of International Business Studies, Palgrave Macmillan, vol. 7(2), pages 75-80, June.
    30. Christophe, Stephen E. & Lee, Hun, 2005. "What matters about internationalization: a market-based assessment," Journal of Business Research, Elsevier, vol. 58(5), pages 636-643, May.
    31. Christophe, Stephen E, 1997. "Hysteresis and the Value of the U.S. Multinational Corporation," The Journal of Business, University of Chicago Press, vol. 70(3), pages 435-62, July.
    32. Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
    33. Doukas, John & Travlos, Nickolaos G, 1988. " The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions," Journal of Finance, American Finance Association, vol. 43(5), pages 1161-75, December.
    34. Christos Pantzalis, 2001. "Does Location Matter? An Empirical Analysis of Geographic Scope and MNC Market Valuation," Journal of International Business Studies, Palgrave Macmillan, vol. 32(1), pages 133-155, March.
    35. Kim, Young Sang & Mathur, Ike, 2008. "The impact of geographic diversification on firm performance," International Review of Financial Analysis, Elsevier, vol. 17(4), pages 747-766, September.
    36. John A Doukas & Ozgur B Kan, 2006. "Does global diversification destroy firm value?," Journal of International Business Studies, Palgrave Macmillan, vol. 37(3), pages 352-371, May.
    37. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan, vol. 29(1), pages 45-66, March.
    38. Mike W Peng, 2004. "Identifying the big question in international business research," Journal of International Business Studies, Palgrave Macmillan, vol. 35(2), pages 99-108, March.
    39. Christophe, Stephen E & Pfeiffer, Ray J, Jr, 2002. " The Valuation of MNC International Operations during the 1990s," Review of Quantitative Finance and Accounting, Springer, vol. 18(2), pages 119-38, March.
    40. Kiymaz, Halil, 2004. "Cross-border acquisitions of US financial institutions: Impact of macroeconomic factors," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1413-1439, June.
    41. Fauver, Larry & Houston, Joel F. & Naranjo, Andy, 2004. "Cross-country evidence on the value of corporate industrial and international diversification," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 729-752, November.
    42. John H Dunning, 1980. "Towards an Eclectic Theory of International Production: Some Empirical Tests," Journal of International Business Studies, Palgrave Macmillan, vol. 11(1), pages 9-31, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:19:y:2010:i:6:p:562-574. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.