Does multinationality lead to value enhancement? An empirical examination of publicly listed corporations from Germany

We analyse the impact of multinationality on shareholder value in the case of German firms for the time span from 1990 to 2006. Based on a sample of 13,130 firm-year observations, we find that multinational companies perform worse in terms of shareholder value than domestic companies. This relationship remains stable even after controlling for industrial diversification. However, using a multivariate regression model, the impact of multinationality on shareholder value turns out to be positive. Obviously, the relationship between multinationality and shareholder value seems to be a classical example of Simpson's paradox. Therefore, bivariate analysis of the effects of multinationality on shareholder value must be considered as methodologically inappropriate. We find that the effect of multinationality on shareholder value depends on the existence of intangible assets either related to research and development or on the existence of intangible assets related to marketing and management skills. Hence, our findings support the results of Morck and Yeung (1991). Furthermore, our findings tend to support the view that the effect of mulinationality depends on the potential to realize economies of scale. The implication is that multinationality is not a value in itself. The multinational company has to have either intangible assets that can be capitalized abroad or the potential to realize economies of scale through internationalization in order for multinationality to lead to value enhancement.