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Investment Performance of U.S.-Based Multinational Companies: Comments and a Perspective on International Diversification of Real Assets

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  • Raj Aggarwal

    (The University of Toledo)

Abstract

The major objective of this paper is to provide a short review of the literature regarding investor evaluation of foreign operations of U.S.-based multinational companies. While U.S.-based multinational companies continue to expand overseas, this paper addresses the question: Do investor-owners recognize the advantages of international diversification of real assets provided by their investment in the shares of a multinational company as opposed to international portfolio diversification directly by these investors?This paper concludes that there seems to be a substantial body of evidence to indicate that an increasing proportion of internationality is associated with decreasing dependence on the domestic capital markets, decreasing systematic risk, and an increasing price/earnings ratio. Thus, U.S. investors are found to like and reward international operations of U.S. companies possibly because of the advantages of international diversification of real assets, the higher profitability and growth rates of foreign operations, or some other advantages enjoyed by multinational companies. These results imply that the risk-return characteristics of each foreign investment be used to determine an appropriate hurdle rate which may even be lower than the hurdle rate of a comparable domestic project.© 1980 JIBS. Journal of International Business Studies (1980) 11, 98–104

Suggested Citation

  • Raj Aggarwal, 1980. "Investment Performance of U.S.-Based Multinational Companies: Comments and a Perspective on International Diversification of Real Assets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 98-104, March.
    • Handle: RePEc:pal:jintbs:v:11:y:1980:i:1:p:98-104
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    Cited by:

    1. Folasade Bosede Adegboye & Uchechukwu Emena Okorie, 2023. "Fragility of FDI flows in sub-Saharan Africa region: does the paradox persist?," Future Business Journal, Springer, vol. 9(1), pages 1-9, December.
    2. Balasubramanian Elango & S. Prakash Sethi, 2007. "An exploration of the relationship between country of origin (COE) and the internationalization-performance paradigm," Management International Review, Springer, vol. 47(3), pages 369-392, June.
    3. Desbordes, Rodolphe, 2007. "The sensitivity of U.S. multinational enterprises to political and macroeconomic uncertainty: A sectoral analysis," International Business Review, Elsevier, vol. 16(6), pages 732-750, December.
    4. Chiung-Jung Chen & Chwo-Ming Joseph Yu, 2011. "FDI, Export, and Capital Structure," Management International Review, Springer, vol. 51(3), pages 295-320, June.
    5. Folasade Bosede Adegboye & Romanus Osabohien & Felicia O. Olokoyo & Oluwatoyin Matthew & Oluwasogo Adediran, 2020. "Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-9, December.

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