International business enterprises

This research focuses on cross-border acquisitions of emerging market multinationals (EM MNEs). Opposing theoretical perspectives of colonial ties (i.e., country ties between the acquiring and target firm countries, with the former being a colonized country and the latter being a colonizer country) are argued as predictors of EM MNE equity participation. Colonial tie is discussed as a source of legitimacy that can lower legitimacy threats (i.e., the likelihood of being deemed as illegitimate) via promoting similarities in informal institutions of the home and host countries. On the other hand, colonial tie is argued to be a historical event that can increase legitimacy threats due to perceived superiority of the colonizer. Chapter 1 contains an overview of and rationale for the study. Chapters 2-4 cover the literature review, theoretical development, contributions, and avenues for future research. This research fills the gap in literature by introducing colonization as a historical perspective with which to understand equity participation decisions.

Contrasting viewpoints have emerged regarding the selection of marketing strategies in global markets. One group of scholars recommends standardized global marketing strategies based on the premise that technological advances in telecommunication, transportation, and media are leading to similarities in customer preferences across the world. Other researchers recommend multi-domestic strategies on the premise that consumer heterogeneity continues to increase even within countries. Firms marketing products in global markets appear to adopt global marketing strategies, multi-domestic strategies, and various intermediate strategies that encompass different degrees of standardization. This research develops a theoretical framework to examine the factors that influence marketing strategies in global markets. Transaction cost analysis constructs are used to determine whether to standardize or customize marketing strategy. The basis for adopting different levels of standardization on marketing program and process variables is empirically investigated. A multinomial logit model is used to estimate the likelihood of adopting different degrees of standardization with data from American multinational corporations on 161 products marketed in different global markets. The results indicate that higher levels of asset specificity associated with patented technical knowledge favor physical attribute standardization in global markets. Volatile political environments, high degrees of ownership in affiliates, and global competitors' standardized marketing strategies encourage firms to tailor physical attributes. Brand names are standardized if the economic uncertainty is lower in foreign markets. Cultural dissimilarities between home and host countries hinder marketing control systems standardization. Operating experience in foreign countries and the need for technical service and customer interactions support standardization of marketing control systems. The need for specialized local market knowledge encourages the adoption of country-specific marketing research methods. Standardized pricing strategies are preferred over flexible country-specific strategies in volatile political environments.

This dissertation extends previous research on the exchange-rate exposure of multinational corporations. Exchange rate exposure is defined as the impact of unanticipated changes in exchange rates on stock prices. The motivation for the study lies in a fundamental discrepancy between academic research and practice: Academic research has shown that exchange-rate exposure is not priced in capital markets, but the use of financial hedging instruments designed to protect firms from unanticipated changes in exchange rates is widespread. This leads to the conclusion that exchange rate exposure is priced in equity markets and is a function of firm specific factors. This dissertation segregated firms based on various factors that might affect its exchange rate exposure. They are: A firms foreign sales characteristics, the export/import characteristics of the industry to which it belongs, the competitive structure of the firms industry, its business organization and its degree of concentration in sales. The results indicate that firms that operate in the service sector of the economy are more exposed to exchange rate risk than those that operate in the manufacturing sector. On the other hand, the degree of competition among firms in an industry does not have an impact on exchange rate exposure. The results indicate that a firms degree of concentration in foreign sales has an impact on its exchange rate exposure. These results imply that restructuring operations can reduce a firms exchange rate risk. When taken together, the results of the dissertation indicate that exchange rate is exposure is priced in capital markets and is a function of firm specific factors. These results have implications for corporate investors and managers. Corporate investors can choose portfolios that will limit their exchange rate exposure. Corporate managers can make hedging decisions for the firm based on the degree of exposure the firm faces which is a function of who it is and what it does.

Exchange rate fluctuations create disparate types and degrees of exposure. Cash flows and net income fluctuate as result of exchange rate fluctuations. Consequently, shareholders, debtholders, and management closely monitor exposure. This dissertation investigates characteristics that explain the differential exposure of U.S.-based multinational corporations (MNCs) and examines conditions that influence exposure to shift over time. Operating characteristics that represent economic and accounting exposure are empirically studied to determine their impact on the overall exposure of MNCs. First, the results show that MNCs with imbalances in foreign currency inflows and outflows are more sensitive to exchange rate changes. A simple measure of European involvement is not adequate to assess the level of exposure. Second, it is found that the degree of export sales is a significant determinant of exposure. Third, there is strong support that accounting exposure is relevant. The translation effect on earnings is found to be significantly related to overall exposure. It is feasible that the dynamic nature of the international marketplace and MNC operations influence exposure to shift over time. First, the European Community Exchange Rate Mechanism (ERM) crisis is studied. The ERM crisis provides an opportunity to assess the effects on exposure when a tightly-controlled exchange rate regime becomes more relaxed. Using portfolio returns, U.S.-based MNCs operating in Europe experienced a positive shift in exposure, indicating returns are positively related to a strengthening dollar, following the onset of the ERM crisis. The strength of the dollar is another condition examined. Due to potential asymmetric responses, exposure may shift as the strength of the dollar changes. The asymmetric hedging hypothesis is not strongly supported while there is some support for the asymmetric competitive response hypothesis. The effects of repositioning on exposure are also studied. This analysis differs from the previous analyses of shifts in exposure since repositioning activities are predominantly under management's control. There is some evidence that exposure is a variable that continually changes as repositioning occurs. A subset of MNCs with returns that are negatively affected by a strong dollar displays time-varying exposure due to changes in their imbalance of foreign currency inflows and outflows.

The corporate form of business organization has associated with it potentially significant agency costs. These costs arise principally from the separation of ownership and control interests in the firm. While it is widely believed that multinational corporations (MNCs) with substantial foreign market exposure face higher agency costs than less-exposed MNCs or domestic firms, empirical evidence in support of this contention is largely absent from the literature. This dissertation uses capital market data to empirically examine the theory that multinational corporations with substantial exposure to foreign markets incur greater agency costs than less-exposed MNCs or domestic corporations. Using the agency cost perspective of common shareholders, this study tests for evidence of a differential agency cost effect for MNCs by examining the market reaction to a series of events that should tend to signal a change in the level of agency costs for all firms. If MNCs with significant foreign market exposure experience higher agency costs than less-exposed MNCs or domestic corporations, then events that tend to reduce (increase) agency costs in all firms should have greater positive (negative) wealth effects for highly exposed MNCs. An event-study methodology is used to measure the abnormal returns associated with the announcements of four separate events: (1) debt offerings; (2) equity offerings; (3) organizational restructurings; and (4) takeover defenses. The observed abnormal returns are then examined cross-sectionally to test whether various firm-specific factors (primarily degree of foreign market exposure) are influential in explaining the pattern of returns. When taken together, the results of the four event-studies and their associated cross-sectional analyses support the main hypothesis of this dissertation that multinational corporations with substantial foreign market exposure experience greater levels of agency costs than less-exposed MNCs or domestic corporations. The strength of these findings depends upon the extent to which the underlying events represent effective proxies for changes in agency costs across firms.

The purpose of this study is to develop and empirically test theories on wealth effects surrounding divestiture of foreign and domestic subsidiaries by U.S. firms. Two primary research questions are addressed: (1) What are the wealth effects associated with divestiture of foreign and domestic subsidiaries? (2) How do firm-specific and macroeconomic conditions affect these wealth effects? Various methodologies are used to empirically test theories and hypotheses. Two samples of divestitures that occurred between 1979 and 1991 are used. One sample consists of 111 divestitures of foreign subsidiaries by U.S. firms, and the other sample consists of 148 divestitures of domestic subsidiaries by U.S. firms. The results of this study are relevant to corporate managers, investors, security analysts, and other researchers. Foreign and domestic divestitures elicit positive short-run valuation effects of about 1 and 2 percent respectively. In the long run, firms that divest foreign subsidiaries increase in value on average by about 15 percent over a 5 year post-divestiture period. Conversely, firms that divest domestic subsidiaries decrease in value on average by about 11 percent over the 5 years that follow divestiture. No significant change in firm risk is associated with foreign or domestic divestitures. Relations between short-run and long-run valuation effects in the sample of domestic divestitures are positive and significant for periods of up to 4 years after divestiture, but for foreign divestitures, such relations are not significant. This suggests that the market adjusts more slowly but seems to more accurately predict the long run impact of domestic divestitures. Large divestitures elicit large valuation effects. Financially strong firms divesting foreign subsidiaries experience less favorable valuation effects. Greater valuation effects result from divestiture of unrelated subsidiaries. Strategic divestitures elicit positive valuation effects in the short run but little unique effect in the long run. Domestic divestitures that occur because of liquidity problems elicit positive valuation effects. Larger valuation effects are associated with divestiture of foreign subsidiaries in industrial countries than in less developed countries. A strong U.S. dollar seems to have a positive influence on short-run valuation effects but no material influence on long-run valuation effects associated with foreign divestiture.

The purpose of the current manuscript was to examine acquirer and market behavior surrounding a sample of international mergers and acquisitions. The first essay examined the existence of a private company discount and its connections to liquidity. It found that unlisted targets sell for less than their public counterparts, confirming earlier findings. The examination of a connection between the discount and liquidity mostly contradicted earlier studies (Officer 2007), depending on which subsample was selected. The second essay examined the existence of a target price runup preceding acquisitions announcements, existence of a substitution effect between runup and premium, and whether investor protection influenced the two. It confirmed the earlier findings of a significant runup preceding acquisition announcements, with the runup being more pronounced in those targets from weaker investor protection countries. Contrary to Schwert (1996), the study found a significant substitution effect between runup and premium, with the effect stronger if the acquirers are from countries with weak investor protection. The third essay examined acquirer stock price reaction to the three different components of the offer price: target's stand-alone valuation, pre-announcement runup and the offer premium. Each component was found to have an overall insignificant effect on the acquirer stock price in the overall sample. When the targets were from the countries with the weakest investor protection, the study found that the reaction to both the runup and stand-alone target valuation depend on both target and acquirer country investor protection. The study also found that when the targets were from the countries with the weakest investor protection, and only from those countries, acquirer stock price reacted negatively to any individual component of the offer price being higher.

The growth of global competition has established international segmentation as a key issue in developing, positioning and selling products throughout the world (Ter Hofstede, Steenkamp and Wedel 1999). Many international segmentation studies have used macro-level, secondary data to identify country clusters based on similarities in political, economic, geographic or cultural variables. As a result of extensive review, we identify three major gaps in the international country segmentation literature. First, no study so far has accounted for the influence of time. While researchers suggest that longitudinal analysis provides additional insight into whether situational characteristics of countries change over time (Cavusgil, Kiyak, and Yeniyurt 2004; Helsen, Jedidi, and DeSarbo 1993; Sethi 1971; Steenkamp and Hofstede 2002,), a major limitation of this body of work is that most studies address country-level segmentation at a single point in time. However, bases of segmentation are considered to be dynamic in nature (Hassan, Craft, and Kortam 2003) and global and country-specific changes in economic development are likely to result in variations in segment membership over time. We investigate the stability of factors and the stability of segments over time by performing cluster analysis at two points of time. Second, most studies use ad hoc variables without theoretical basis which may result in accidental generalizations. Instead of suggesting a proliferation of random variables, which are considered influential in the decision making process without any empirical or theoretical evidence, we propose a theoretical basis for country segmentation. We use institutional theory to distinguish between heterogeneous groups of countries. Finally, there is the issue of providing "one size fits all" solutions.