The Effects of the Degree of Internationalization on the Market Value of Cash

Abstract

In this paper, we advance the literature on cash holdings and international business by analyzing whether the degree of internationalization influences the value investors place on cash holdings in Latin American companies. Consistent with the research hypothesis, we find strong and robust evidence that investors do not perceive the cash holdings of multinational corporations from Latin America or Multilatinas as providing greater benefits relative to the cash of their domestic peers. As a consequence, we document that investors do not place a higher value on the cash of Multilatinas than on that of Latin American domestic companies, despite the fact that the former has higher growth opportunities. This paper is an important step in understanding Latin America and the multinational corporations from this region. Furthermore, our research has implications for managers of multinational corporations that have subsidiaries in countries with valuable growth opportunities, but the risk of cash expropriation is substantial due to the poor protection of shareholders rights. Finally, our study also highlights the relevance of considering the mandatory disclosure of foreign cash, in location and amount, to improve efficiency in stakeholder decision-making and also to advance the understanding the effects of foreign cash on Multilatinas' investment decisions.