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Value Relevance of Earnings of Multinational Firms: Regulatory Regimes Associated with Foreign Subsidiaries

Author

Listed:
  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Iftekhar Hasan

    (Fordham University, 1790 Broadway, 11th Floor, New York, NY 10019, USA - Fordham University [New York])

  • Ibrahim Siraj

    (RPI - Rensselaer Polytechnic Institute)

  • Qiang Wu

    (RPI - Rensselaer Polytechnic Institute)

Abstract

We examine market valuation of foreign earnings of US multinational firms in the context of strength of rule of law of countries in which the international subsidiaries are located. Using 12,288 firm-years observations for the period of 1996 to 2013, we find that foreign earnings association with returns are increasing with the average rule of law of countries in which the MNCs have subsidiaries. We find negative returns-foreign earnings association when a firms expand its operations to other countries, but such association turns out positive when the expansion occurs to countries with stronger investor protection. Value relevance of foreign earnings is highest for the firms which have international subsidiaries located to destinations that are strong in rule of law but are not characterized as tax haven. Our results are robust to alternative empirical specifications and to the concern of endogenous relationship between market valuation and multinational choice of foreign location.

Suggested Citation

  • 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.
    • Handle: RePEc:hal:wpaper:hal-01360048
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-01360048
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    Cited by:

    1. Taran, Alina & Simga-Mugan, Can & Mironiuc, Marilena, 2021. "Country-segment disclosure of foreign operations from Central and Eastern Europe: Country-level determinants and value relevance," Journal of Multinational Financial Management, Elsevier, vol. 62(C).

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