A Commentary on Risk Reduction by Geographic Diversification

A Commentary on Risk Reduction by Geographic Diversification The relationship between multinationality and value is still one of the most fundamental questions in IB research. Gande, Schenzler, and Senbet (2009) claim to have found empirical evidence for the incomplete capital markets theory (ICMT), which stipulates that investors value corporate multinationality due to its risk‐reducing effect. We show here that their findings do not support the hypothesis that investors value geographical diversification at the firm level because of its risk reducing effect. Further, a review of extant research shows that empirical results concerning the valuation impact of the risk‐reducing effect of geographical diversification at the firm level have to be regarded with caution due to conceptual and methodological inconsistencies. Consequently, this paper proposes several methodological refinements. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Multinational Business Review Emerald Publishing

A Commentary on Risk Reduction by Geographic Diversification

Multinational Business Review, Volume 18 (4): 19 – Nov 11, 2010

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1525-383X
DOI
10.1108/1525383X201000021
Publisher site
See Article on Publisher Site

Abstract

The relationship between multinationality and value is still one of the most fundamental questions in IB research. Gande, Schenzler, and Senbet (2009) claim to have found empirical evidence for the incomplete capital markets theory (ICMT), which stipulates that investors value corporate multinationality due to its risk‐reducing effect. We show here that their findings do not support the hypothesis that investors value geographical diversification at the firm level because of its risk reducing effect. Further, a review of extant research shows that empirical results concerning the valuation impact of the risk‐reducing effect of geographical diversification at the firm level have to be regarded with caution due to conceptual and methodological inconsistencies. Consequently, this paper proposes several methodological refinements.

Journal

Multinational Business ReviewEmerald Publishing

Published: Nov 11, 2010

Keywords: Multinationality; Performance; Geographical diversification; Risk reduction; Incomplete capital markets theory

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