Shareholder Valuation of Value Chain Activities Across Home and Foreign Markets

Abstract

This study disaggregates firm value chain activities across both home and foreign markets to explore how the multidimensional nature of firm activities across markets influences shareholder valuation of foreign investments. We argue that shareholders will value substitute and complementary foreign investments within and between value chain activities in different ways, depending on how a firm is changing its footprint in its home country. Using a two-stage approach to control for the decision to invest abroad, we analyze these issues using a random sample of 803 US manufacturing firms and their foreign investments between 1993 and 2015. We find that shareholders value complementary foreign investments in distribution when they are increasing their domestic manufacturing activities. We also find that substitute foreign investments in manufacturing are valued when firms are not growing their manufacturing activities in their domestic market. These results highlight the importance of considering the complex ...