Multinational Firms, International Diversification, Value, and Governance
39 Pages Posted: 23 Sep 2009
Date Written: September 16, 2009
This paper presents evidence that subsidiaries of multinational firms have higher valuations than locally matched firms. Using a unique sample of 251 UK multinational firms and 4,676 subsidiaries, the paper finds that multinational firms achieve, on average, an international diversification premium of 19%. Further, the value premium is increasing in the difference between the parent and host country's firm-level corporate governance, consistent with the hypothesis that multinational firms are compensated for exporting good governance. The results are robust to alternative governance mechanisms, and continue to obtain in regressions controlling for endogeneity and self-selection.
Keywords: Corporate governance, Firm valuation, Corporate diversification, Capital budgeting, Firm organization, Multinational firms
JEL Classification: G30, G31, G33, G34, G38, L20, L25
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