An Alternative Perspective on Multinationality: Integrating Research in International Business and Finance

Abstract

The Multinational Company (MNC) is one of the most important concepts across many business research domains. Multinational companies (MNCs) vary significantly in terms of risk exposure, operational activities and financial activities. However, there are no commonly and widely agreed definitions and measures of multinationality. Despite multinational companies' (MNCs) prevalence in International Business (IB) research, few studies consider the importance of measuring firm-level multinationality while distinguishing between MNCs and Domestic Companies (DCs) using more IB perspective measures. Unsurprisingly, empirical evidence on these studies measuring firm level multinationality remain inconclusive (Aggarwal & Kyaw, 2010; Lindner et al., 2018). In light of this situation, this thesis applies a more IB perspective to measure multinationality on three financial subjects and then uses this perspective to investigate three areas in finance – stock liquidity, capital structure and dividend policy, in which previous studies provide conflicting empirical results and theoretical arguments. Following Aggarwal, Berrill, Hutson, and Kearney (2011), this thesis applies a classification scheme - the ABHK model to categorise firms. While many commonly used measures such as the percentage foreign sales or assets focus on the total degree of multinationality, the ABHK model captures the breadth of multinationality. The motivation behind the use of this model is to distinguish between firms with high levels of foreign sales spread throughout the world (the ABHK model) that differ significantly from firms with high levels of foreign sales or foreign assets in a single neighbouring country. Furthermore, the liabilities of foreignness (LOF) theory is used to provide an alternative perspective on my three chosen financial topics. Since the pioneering work of Zaheer (1995) which defines LOF as “all additional costs a firm operating in a market overseas incurs that a local firm would not incur” (Zaheer, 1995, p. 343), LOF has mainly been applied in product (non-equity) markets in International Business studies (Baik et al., 2013). This thesis is not aware of any other Financial or International Business Studies that investigate the impact of the breadth of multinationality on financial subjects while incorporating the LOF as a theoretical explanation. This thesis first studies the impact of both the total and the breadth of multinationality on stock liquidity. Previous research almost exclusively relies on event study analysis and uses cross-listing as their measure of multinationality. While most previous studies find a positive relationship, this thesis finds that this positive relationship between stock liquidity and multinationality measured using the ABHK score does not increase gradually but presents as an inverted horizontal-S-shaped trend. This thesis finds an increase in stock liquidity at low and high levels of multinationality, while a decrease at moderate levels. Next, this thesis considers the impact of both the total and the breadth of multinationality on capital structure. This thesis finds that the breadth of multinationality has a positive impact on short-term debt. Moreover, my sub-period analysis shows that the relationship between multinationality and firms’ long-term and total debt changed significantly since the global financial crisis (GFC) of 2008. The breadth of multinationality was positively related to both long-term and total debt before the GFC, while it becomes negatively related to the long-term and total debt after the GFC. 5 Finally, this thesis analyses the impact of both the total and the breadth of multinationality on dividend policy. Results suggest a negative relationship between the breadth of multinationality and dividend policy. Moreover, the results show that the negative relationship does not increase gradually. This thesis finds that firms with foreign sales only in one geographic region pay the lowest dividends, while firms that have foreign sales from two geographic regions pay the highest dividends. Overall, this thesis provides a novel perspective on research integrating the IB and finance areas, using an alternative perspective on a core concept, the MNC. In doing so, it answers the call of Puck and Filatotchev (2018) for future research on the overlap of Finance and IB and cross-border contributions.