International Corporate Diversification, Market Valuation, and Size-Adjusted Evidence VIHANG R. ERRUNZA AND LEMMA W. SENBET* I. Introduction Errunza and Senbet [ES, 7 analyze the effects of international .operations on 1 the market value of the firm both at theoretical and empirical levels. The theoretical model, which is largely heuristic, exploits the costly supply adjustment of multinational firms (MNCs) in providing international portfolio diversification services to investors who face differential cost barriers to direct holdings of assets across national boundaries. MNCs compete as financial intermediaries to undo the barriers so that, in equilibrium, profits are driven out; MNCs and pure domestic firms sell at an equivalent risk-adjusted return. However, costly financial intermediation and the associated relative efficiency leads to a positive valuation effect for MNCs relative to purely domestic firms. Further, the equilibrium analysis implies that demand-side (investor) barriers to international capital flows alone are inconsequential to the valuation of MNCs in their pure financial role, but that the interaction with the supply-side costs are necessary to produce a valuation effect at the corporate level. ES subject the theory to an empirical analysis in a value-based approach by employing a variant of Tobinâs qratio. The analysis, controlling for industrial
The Journal of Finance – Wiley
Published: Jul 1, 1984
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera