Causality Between International Expansion & Investment in Intangibles: Implications for Financial Performance & Firm Survival

Global Competition & Market Entry Strategies, J-F Hennert (ed.) Elsevier, North-Holland, 1997

University of Alberta School of Business Research Paper No. 2013-917

Posted: 13 Feb 2014

See all articles by William Mitchell

William Mitchell

Independent

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

J. Myles Shaver

New York University (NYU) - Leonard N. Stern School of Business

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: May 30, 1996

Abstract

This paper reports a statistical study of the temporal causal relationships between expansion of a firm's multinational structure and the firm's growth in spending of R & D and advertising. We find that firms increase R & D expenditures after expanding their multinational structure, but not vice versa. We also find that past growth of R & D spending increases a firm's rate of return. Consistent with the above observations, past growth in R & D spending strongly increases the likelihood that a firm will survive during the study period, while past international expansion has a weak positive effect on survival. The results are consistent with three arguments. First, because international expansion is often risky with uncertain results, increased spending on international expansion. Second, attracted by opportunities to expand the scale and scope of its operation, a firm increases its investment in intangibles after it increases its international presence. third, nonetheless, investment in intangibles is the driving force of improved financial performance, meaning that multinational firms will only be able to garner better financial performance if they increase their spending on intangibles once increasing their international presence. The data include 239 public American corporations operating during the 1980s.

Suggested Citation

Mitchell, William and Morck, Randall K. and Shaver, J. Myles and Yeung, Bernard Yin, Causality Between International Expansion & Investment in Intangibles: Implications for Financial Performance & Firm Survival (May 30, 1996). Global Competition & Market Entry Strategies, J-F Hennert (ed.) Elsevier, North-Holland, 1997; University of Alberta School of Business Research Paper No. 2013-917. Available at SSRN: https://ssrn.com/abstract=2279751

William Mitchell (Contact Author)

Independent

No Address Available

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

J. Myles Shaver

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0430 (Phone)
212-995-422l (Fax)

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
282
PlumX Metrics