The Operational Hedging Properties of Intangible Assets: The Case of Non-voluntary Foreign Asset Selloffs

31 Pages Posted: 5 Jan 2003  

John A. Doukas

Old Dominion University - Strome College of Business

Prasad Padmanabhan

San Diego State University - Finance Department

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Abstract

In this paper we examine the valuation effects and long-term performance of US multinational firms involved in forced transfers of their foreign operating assets during the 1965-88 period. The evidence suggests that the operational hedging ability of the firm to address country risk (nationalization threats) is related to the level of its intangible assets. While it is well known that firms with high levels of intangible assets prefer foreign direct investment, our results show that intangible assets have hidden properties of protection against country risk as well. We document significantly negative abnormal returns only for divesting firms with low levels of intangible assets, but not for firms with high levels of intangible assets. In addition, we show that low (high) growth firms are involved in partial (complete) withdrawals, and show that the long-term economic performance of firms choosing the complete withdrawal strategy is better than those that opt to remain. We argue that management's attempt to maintain economic links in a hostile foreign environment can be attributed in part to the firm's low growth opportunities, performance, and lack of contingent plans to address country risk.

JEL Classification: G12, M41

Suggested Citation

Doukas, John A. and Padmanabhan, Prasad, The Operational Hedging Properties of Intangible Assets: The Case of Non-voluntary Foreign Asset Selloffs. Journal of International Financial Management and Accounting, Vol. 13, pp. 183-213, 2002. Available at SSRN: https://ssrn.com/abstract=342786

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Prasad Padmanabhan

San Diego State University - Finance Department

5500 Campanile Drive
San Diego, CA 92182-8236
United States

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