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The Value of U.S. MNC Earnings Changes from Foreign and Domestic Operations

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  • Stephen E. Christophe

    (George Mason University)

Abstract

This study examines whether the stock return associated with changes in domestic and foreign earnings varies depending upon the sign of the change. Evidence is presented that negative foreign (vs. domestic) earnings changes are associated with significantly larger stock returns. In contrast, positive foreign and domestic earnings changes are associated with statistically indistinguishable returns. The large association coefficient corresponding to negative foreign earnings changes is especially pronounced for firms with substantial free cash flow and for firms with high anticipated growth opportunities. No evidence is found that positive foreign earnings changes result in high returns due to foreign market growth opportunities.

Suggested Citation

  • Stephen E. Christophe, 2002. "The Value of U.S. MNC Earnings Changes from Foreign and Domestic Operations," The Journal of Business, University of Chicago Press, vol. 75(1), pages 67-94, January.
    • Handle: RePEc:ucp:jnlbus:v:75:y:2002:i:1:p:67-94
    DOI: 10.1086/323505
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    Cited by:

    1. Joliet, Robert & Muller, Aline, 2016. "Are foreign earnings disclosures value-relevant?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 170-183.
    2. Jeffrey L. Callen, 2016. "Accounting Valuation and Cost of Equity Capital Dynamics," Abacus, Accounting Foundation, University of Sydney, vol. 52(1), pages 5-25, March.
    3. Joliet, Robert & Hubner, Georges, 2008. "Corporate international diversification and the cost of equity: European evidence," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 102-123, February.
    4. Amine Tarazi & Iftekhar Hasan & Ibrahim Siraj & Qiang Wu, 2016. "Value Relevance of Earnings of Multinational Firms: Regulatory Regimes Associated with Foreign Subsidiaries," Working Papers hal-01360048, HAL.
    5. Ole‐Kristian Hope & Tony Kang & Wayne B. Thomas & Florin Vasvari, 2008. "Pricing and Mispricing Effects of SFAS 131," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 281-306, April.

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