Operating flexibility of multinational corporations and determinants of excess market values over domestic firms.
Item
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Title
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Operating flexibility of multinational corporations and determinants of excess market values over domestic firms.
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Identifier
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AAI9605645
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identifier
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9605645
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Creator
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Pantzalis, Christos.
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Contributor
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Adviser: Stavros B. Thomadakis
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Date
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1995
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance | Economics, Commerce-Business
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Abstract
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In this paper the conceptual and mathematical framework of real options is used as the centerpiece for the depiction of operating flexibility. A foundation for doing empirical work is built by formulating a theoretical model which compares multinational firms' (MNCs) market values with those firms constrained within national boundaries. The empirical results show that MNCs not only have higher market values, but also that the factors determining market values are different in MNCs. The tests provided here prove that multinationality variables offer additional explanation over and above the usual structural variables (e.g. R&D) or advertising intensity).;The returns to multinationality are estimated as the value of "operating flexibility"; the value of a portfolio of real options enabling the MNC to optimally adjust production decisions in response to external international perturbations. Empirical measures of the return to multinationality, then, require a precise specification of the extensiveness of the MNC's transnational network to measure the degree of multinationality. This precise, empirically grounded definition of multinationality has been absent from the academic literature to date. This paper addresses this omission by utilizing a switching regression methodology to endogenize the subsidiary network-structure specification. This research shows that the determination of the value of operating flexibility has nonlinear determinants and that distinct "regimes" of multinationality can be empirically pinpointed. We find that two characteristics of the transnational network: "width" (number of foreign countries in which the MNC has operations) and "depth" (the concentration of foreign subsidiaries in few countries) are significant in explaining the value of operating flexibility. In particular we find that the returns to multinationality are maximized for firms with networks that have "width", but not "depth". The role of market intangibles such as R&D and advertising on MNC market valuation is shown to depend on the flexibility regime.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
