| The purpose of the study was to examine the effect of cultural differences (CD) of foreign subsidiaries on the firm value of U.S. parent companies (U.S. Multinational Corporations (MNCs). The study examined the value impact of cultural differences on three different valuation models: (1) Tobin's Q (Anita, Lin, & Pantzalis, 2005); (2) Weighted Cost of Capital (WACC) (Copeland, Koller & Murin, 2000); and (3) Market Value Added (MVA) (Pratt with Niculita, 2005). Under the model Tobin's Q, a reduction in firm value of the U.S. parent company was found. In contrast, the WACC and MVA models enhanced the firm value of the U.S. parent company. Cultural dimension scores of foreign subsidiaries were used by counting the countries in Hofstede's indices (1980a, 1980b, 1991a, 1991b & 1993) to devise the cultural distance scores. The findings of this study suggested that CD had a relationship to U.S. parent company firm value. CD had a relationship that reduced the firm value of the U.S. parent company when using the valuation model Tobin's Q. CD enhanced the firm value of the U.S. parent company when using the valuation models WACC and MVA. No conclusions can be drawn as to whether CD enhanced or reduced firm value of U.S. MNCs. Since the methodology used by the study was multiple regression and correlation analysis, other variables could affect the firm value of the U.S. parent company. |
