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Are Large Multinational Companies Undervalued? Emerging Markets Perspective

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  • Kadish, Peter

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.

Suggested Citation

  • Kadish, Peter, 2010. "Are Large Multinational Companies Undervalued? Emerging Markets Perspective," MPRA Paper 24315, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24315
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    File URL: https://mpra.ub.uni-muenchen.de/24315/1/MPRA_paper_24315.pdf
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    References listed on IDEAS

    as
    1. Diego Comin & Norman Loayza & Farooq Pasha & Luis Serven, 2014. "Medium Term Business Cycles in Developing Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 209-245, October.
    2. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian, 2008. "Financial market integration and the value of global diversification: Evidence for US acquirers in cross-border mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1522-1540, August.
    3. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, August.
    4. Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports 295, Federal Reserve Bank of New York.
    5. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Multinational companies; M&A; FDI; Globalization;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F01 - International Economics - - General - - - Global Outlook
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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