Multinational Corporations vs. Domestic Corporations

MULTINATIONAL CORPORATIONS VS. DOMESTIC CORPORATIONS: FINANCIAL PERFORMANCE AND CHARACTERISTICS

Allen Michel* and Israel Shaked**

Boston University Abstract. The analysis in this paper is composed of two segments. First, the flnancial performance of a sample of multinational corporations (MNCs) is compared with that derived for a control group of domestic corporations (DMCs) using market-based performance measures. Then, the paper presents a comparison of selected financial characteristics of the firms in the two groups. The results suggest the DMCs appear to have a significantly superior risk-adjusted market-based performance, are significantly less capitalized, and have higher total risk as well as higher systematic risk. The fact that MNCs are substantially larger than DMCs is not found to be a significant factor in explaining the observed difference between the two groups' performance. The study of multinational corporations has received much attention in the literature, yet relatively few studies have systematically evaluated the differences in financial characteristics and performance between multinational and domestic corporations. The analysis in this paper is composed of of two segments. First, the financial perfornmance a sample of multinational corporations (MNCs) is compared with that derived for a control group of domestic corporations (DMCs) using market-based performance measures. Then, the paper presents a comparison of selected financial characteristics of the firms in the two groups. The first section presents the theoretical issues related to the risk-return

* Allen Michelis Associate Professorof Financeat Boston University's School of

Management.He receivedhis Ph.D. from Cornell, M.A. from Yale, and B.S. from Carnegie-Mellon. He specializes in corporate financial decisions and mergersand acquisitions. In addition, he is presidentof Boston Management Group. School **IsraelShakedis Associate Professorof Financeat Boston University's...