Evolution of multinationality and the value of the firm

Four essays in this dissertation study the genesis, evolution, and valuation effect of corporate multinationality based on microeconomic data sets of Japanese firms. Essay 1 shows that, despite the increasing number of studies claiming otherwise for U.S. firms, when the endogenous nature of international growth decisions is accounted for, the stock market valuation effect of multinationality is significantly positive in the case of Japanese firms. It also reveals that the value of multinationality increases with firm size, which itself exerts a negative pressure on firm value. This finding suggests that firms expand internationally to restore growth momentum, which is otherwise lost as they grow large domestically.;Essay 2 challenges the accepted wisdom in the international business literature claiming that there is a positive feedback effect in FDI because of the firm's experiential learning. I show that extant evidence for the effect is spurious rather than real, arising because of the negligence of unobserved firm heterogeneity. The essay shows that, when the heterogeneity is controlled for, the conventional evidence collapses.;Essays 3 and 4 examine the efficiency of multinational evolution. Essay 3, which studies the growth and survival of U.S. plants of Japanese firms, shows that those plants are financially constrained non-trivially and the parent's capacity to provide supports affects their turnovers by changing the degree of the constraint. However, results provide no evidence that parents systematically discriminate across plants in providing supports based on the plant growth prospect, either efficiently (winner picking) or inefficiently (corporate socialism).;Essay 4 studies the valuation consequence of inertly committing to a failing foreign investment based on an event study of U.S. divestments made by Japanese firms. Results show that, upon the announcement of a divestment, the announcing firm's stock price usually increases. However, when a firm whose financial health is trembling announces the divestment of a long-lived investment, the stock market reaction is significantly reduced or even turns to negative. This finding points to a previously unknown cost of inertial commitment arising because of a complex signal divestment sends out to investors.