Multinational Diversification and Performance: A Reevaluation of the Evidence

Abstract

The purpose of this research is to re-examine the benefits (if any) that could apply to US based corporations through increased international investment.

Design, Methodology, Approach: Expanding upon prior studies, firms with foreign operations are segmented by three different schemes: the percentage of foreign tax liability to total tax liability; the percentage of foreign sales to total sales, and the percentage of foreign assets to total assets. We evaluate whether the degree of foreign participation affects the risk-return profile of the firms by categorizing firms with foreign participation into quintiles.

Findings: The research indicates significant differences exist between domestic firms and multinational firms. The extent of multinational diversification does not provide incremental economic benefit. The advantages enjoyed by multinational corporations appear to have disappeared over time due to an increasing integration of the global economy.

Originality/Value: The study suggests that the extent of multinational diversification does not provide incremental economic benefit. The advantages enjoyed by multinational corporations appear to have disappeared over time due to an increasing integration of the global economy.

Keywords: multinational corporate performance, international risk and return

JEL Classification: E39, F23, G15, M49, N20