IDEAS home Printed from https://ideas.repec.org/a/ibf/ijbfre/v8y2014i5p115-125.html
   My bibliography  Save this article

Value and Cost of Multinationality: International Diversification and Real Options Effects

Author

Listed:
  • Sangcheol Song

Abstract

In this research, we examine the moderating impacts of external uncertainty and portfolio ownership on the values and costs of multinationality by comparing international diversification and real options effects. We find from Korean FDI data that uncertainty strengthens the negative value of breadth in low level of multinationality, while ownership weakens. Meanwhile, in high level of multinationality, uncertainty strengthens the positive value of multinationality while ownership weakens. While the first results support international diversification perspective, the second results support real options view.

Suggested Citation

  • Sangcheol Song, 2014. "Value and Cost of Multinationality: International Diversification and Real Options Effects," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(5), pages 115-125.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:5:p:115-125
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v8n5-2014/IJBFR-V8N5-2014-10.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Linda Allen & Christos Pantzalis, 1996. "Valuation of the operating Flexibility of Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(4), pages 633-653, December.
    2. Seung‐Hyun Lee & Sangcheol Song, 2012. "Host country uncertainty, intra‐MNC production shifts, and subsidiary performance," Strategic Management Journal, Wiley Blackwell, vol. 33(11), pages 1331-1340, November.
    3. Darby, Julia, et al, 1999. "The Impact of Exchange Rate Uncertainty on the Level of Investment," Economic Journal, Royal Economic Society, vol. 109(454), pages 55-67, March.
    4. Farok J Contractor & Sumit K Kundu & Chin-Chun Hsu, 2003. "A three-stage theory of international expansion: the link between multinationality and performance in the service sector," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(1), pages 5-18, January.
    5. Seung-Hyun Lee & Mona Makhija, 2009. "The effect of domestic uncertainty on the real options value of international investments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(3), pages 405-420, April.
    6. Christos Pantzalis & Betty J Simkins & Paul A Laux, 2001. "Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(4), pages 793-812, December.
    7. De Santis, Robert A. & Gérard, Bruno, 2009. "International portfolio reallocation: Diversification benefits and European monetary union," European Economic Review, Elsevier, vol. 53(8), pages 1010-1027, November.
    8. Charles Y. Tang & Surinder Tikoo, 1999. "Operational flexibility and market valuation of earnings," Strategic Management Journal, Wiley Blackwell, vol. 20(8), pages 749-761, August.
    9. Bruce Kogut, 1991. "Joint Ventures and the Option to Expand and Acquire," Management Science, INFORMS, vol. 37(1), pages 19-33, January.
    10. Arnd Huchzermeier & Morris A. Cohen, 1996. "Valuing Operational Flexibility Under Exchange Rate Risk," Operations Research, INFORMS, vol. 44(1), pages 100-113, February.
    11. Aabo, Tom & Simkins, Betty J., 2005. "Interaction between real options and financial hedging: Fact or fiction in managerial decision-making," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 353-369.
    12. Thomas, Douglas E., 2006. "International diversification and firm performance in Mexican firms: A curvilinear relationship?," Journal of Business Research, Elsevier, vol. 59(4), pages 501-507, April.
    13. Bruce Kogut & Nalin Kulatilaka, 1994. "Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network," Management Science, INFORMS, vol. 40(1), pages 123-139, January.
    14. Ilya RP Cuypers & Xavier Martin, 2010. "What makes and what does not make a real option? A study of equity shares in international joint ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(1), pages 47-69, January.
    15. Fisch, Jan Hendrik & Zschoche, Miriam, 2011. "Do firms benefit from multinationality through production shifting?," Journal of International Management, Elsevier, vol. 17(2), pages 143-149, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lo, Fang-Yi & Bui, Quang-Tuan & Huarng, Kun-Huang, 2023. "The pace of international expansion for digital multinational enterprises," Technological Forecasting and Social Change, Elsevier, vol. 193(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Song, Sangcheol & Lee, Seung-Hyun & Makhija, Mona, 2015. "Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries," Journal of World Business, Elsevier, vol. 50(3), pages 548-557.
    2. Song, Sangcheol, 2021. "When do multinational corporations adjust production volume flexibly among in-network subsidiaries?," Journal of Business Research, Elsevier, vol. 135(C), pages 532-542.
    3. Song, Sangcheol, 2015. "Exchange rate challenges, flexible intra-firm adjustments, and subsidiary longevity," Journal of World Business, Elsevier, vol. 50(1), pages 36-45.
    4. Sangcheol Song, 2015. "Inter-Country Exchange Rates and Intra-Firm Trade Flow Within Global Network of Multinational Corporations," Management International Review, Springer, vol. 55(1), pages 1-22, February.
    5. Sangcheol Song, 2017. "Ownership Increase in International Joint Ventures: The Within- and Across-Country Flexibility Perspective," Management International Review, Springer, vol. 57(1), pages 93-120, February.
    6. Sangcheol Song, 2014. "Subsidiary Divestment: The Role of Multinational Flexibility," Management International Review, Springer, vol. 54(1), pages 47-70, February.
    7. Song, Sangcheol, 2014. "Unfavorable Market Conditions, Institutional and Financial Development, and Exits of Foreign Subsidiaries," Journal of International Management, Elsevier, vol. 20(3), pages 279-289.
    8. Sangcheol Song, 2013. "FDI Structure, Investment Specificity, and Multinationality Value under Host Market Uncertainty," Management International Review, Springer, vol. 53(6), pages 795-817, December.
    9. Song, Sangcheol, 2022. "Determining investment size and local embeddedness under host market uncertainty and growth rates," International Business Review, Elsevier, vol. 31(2).
    10. Song, Sangcheol, 2023. "Multinational operational flexibility, within-network redundancy, and downside risks and divestment rates of international investments," International Business Review, Elsevier, vol. 32(1).
    11. Song, Sangcheol, 2021. "Do in-network ties help in lowering subsidiary divestment rates under environmental challenges?," Journal of Business Research, Elsevier, vol. 128(C), pages 257-265.
    12. Tailan Chi & Jing Li & Lenos G Trigeorgis & Andrianos E Tsekrekos, 2019. "Real options theory in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 525-553, June.
    13. Aabo, Tom & Pantzalis, Christos & Park, Jung Chul, 2016. "Multinationality as real option facilitator — Illusion or reality?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 1-17.
    14. Pandher, Gurupdesh & Sun, Jerry, 2023. "Firm performance & effective mitigation of adverse business scenarios," Global Finance Journal, Elsevier, vol. 58(C).
    15. Boehe, Dirk Michael, 2014. "Strategic hedging: Evidence from Brazilian exporters," Journal of World Business, Elsevier, vol. 49(3), pages 290-300.
    16. Song, Sangcheol, 2020. "Actualization of growth potential in international joint ventures: The moderating effects of localization strategies," Journal of World Business, Elsevier, vol. 55(2).
    17. Song, Sangcheol, 2023. "Portfolio ownership, production shifts, and downside risks: Evidence from Korea," Journal of Business Research, Elsevier, vol. 155(PA).
    18. Chris Changwha Chung & Seung-Hyun Lee & Jeoung-Yul Lee, 2013. "Dual-Option Subsidiaries and Exit Decisions During Times of Economic Crisis," Management International Review, Springer, vol. 53(4), pages 555-577, August.
    19. Song, Sangcheol, 2022. "Cultural diversification, human resource-based coordination, and downside risks of multinationality," Journal of Business Research, Elsevier, vol. 142(C), pages 562-571.
    20. Sangcheol Song & Jeoung Yul Lee, 2017. "Relationship with Headquarters and Divestments of Foreign Subsidiaries: The Hysteresis Perspective," Management International Review, Springer, vol. 57(4), pages 545-570, August.

    More about this item

    Keywords

    Multinationality; International Area Diversification; Real Options; Uncertainty; Ownership;
    All these keywords.

    JEL classification:

    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:ijbfre:v:8:y:2014:i:5:p:115-125. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.