Multinationals Do it Better: Evidence on the Efficiency of Corporations' Capital Budgeting

Greene, William H.; Hornstein, Abigail S.; White, Lawrence J.

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Multinationals Do it Better: Evidence on the Efficiency of Corporations' Capital Budgeting

Journal of Empirical Finance, Vol. 16, No. 5, 2009

53 Pages Posted: 19 Aug 2014

See all articles by William H. Greene

William H. Greene

New York University Stern School of Business

Lawrence J. White

Stern School of Business, New York University; New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: July 15, 2009

Abstract

With U.S. multinational enterprises playing increasingly important roles in the global economy, it is important to understand the efficiency of their capital budgeting decisions. We examine an unbalanced panel of 332 U.S. firms from 1992-2000. Using the deviation of a firm’s estimated marginal Tobin’s q from a benchmark as an indicator of effective resource allocation, we find that widespread multinationals make more efficient capital budgeting decisions. We also test whether this reflects the MNEs’ investment locations, but do not obtain support for the hypotheses that they might be monitored by more agents or more successfully resist pressures from interest groups and governments.

Keywords: capital budgeting; marginal q; multinational enterprises

JEL Classification: F23, G31

Suggested Citation: Suggested Citation

Greene, William H. and Hornstein, Abigail S. and White, Lawrence J. and White, Lawrence J., Multinationals Do it Better: Evidence on the Efficiency of Corporations' Capital Budgeting (July 15, 2009). Journal of Empirical Finance, Vol. 16, No. 5, 2009, Available at SSRN: https://ssrn.com/abstract=962744