Domestic Multinational Corporations Research Articles

Financial derivatives use and multifaceted exposures

PurposeThe purpose of this paper is to assess the effect of financial derivatives use on different exposures by comparing domestic firms, domestic multinational corporations (MNCs) and affiliates of foreign MNCs using a unique hand-collected data set of derivatives activities from 881 non-financial firms in eight East Asian countries over the period of 2003-2013.Design/methodology/approachIn this paper, the authors apply a two-stage approach. In the first stage, exposures to country risks, exchange rate and interest rate risks are estimated by using the market model. In the second stage, potential effects of firms’ derivatives use on multifaceted exposures are investigated by carrying out pooled regression model, and panel data regressions with random effect specifications.FindingsThe authors provide novel evidence that financial hedging of domestic firms and domestic MNCs reduces exposure to home country risks by 10.91 and 14.42 percent per 1 percent increase in notional derivative holdings, respectively, while affiliates of foreign MNCs fail to mitigate exposure to host country risks. The use of foreign currency and interest rate derivatives by domestic firms and domestic MNCs is effective in alleviating such firms’ exposures to varied degrees, while foreign affiliates’ use of derivatives can only lower interest rate exposures.Originality/valueThe primary theoretical contribution of this study is applying the market model to estimate exposures to home and host country risks. Regarding empirical contributions, the authors provide strong evidence that the use of financial derivatives by domestic firms and domestic MNCs significantly contributes to a decline in exposure to home country risks, and evidence the outperformance of domestic MNCsvis-à-visdomestic firms and foreign affiliates.

Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia

This paper scrutinizes the value effect of financial derivatives on domestic firms, domestic Multinational Corporations (MNCs), and foreign affiliates of foreign MNCs from different aspects of an environment of corruption in both home and host countries by using a novel and hand-collected data set. Our sample includes 881 non-financial firms across eight countries in East Asia from 2003 to 2013. Using Tobin’s Q as a proxy for firm value, we find that low corruption levels induce the use of derivatives, and reward domestic firms and domestic MNCs with higher value; this finding holds after controlling for endogeneity and self-selection bias. The hedging behavior of domestic MNCs outperforms domestic firms and foreign MNC affiliates in terms of firm value. Derivative use is a value-enhancing activity for domestic firms and domestic MNCs, but it has an insignificant effect on foreign MNC affiliates. During the 2007- 2008 financial crisis, the effect of low levels of corruption on alleviating negative impacts on derivatives use is very modest. Yet low corruption levels in the home country are positively associated with the hedging premiums of domestic firms and domestic MNCs in the post-crisis period.

State-level Social Capital and MNCs’ Competitive Political Resources

Previous studies have focused on the effects of dyadic intergovernmental relationships on firm behavior and performance. This study presents a network approach to intergovernmental relationships and examines two moderating effects at the state and firm levels. This study argues that firm-level competitive political resources are a function of the state-level social capital derived from the structural position in intergovernmental networks, the political institutions of home governments, and foreign experiences of multinational corporations (MNCs). State-level social capital arises from home governments’ positions in intergovernmental networks and offers information and control benefits to MNCs. This study hypothesizes that structural position in intergovernmental networks positively impacts MNC behavior. Moreover, it predicts that political institutions facilitate home governments to leverage their social capital for domestic MNCs. Furthermore, it indicates that MNCs with greater foreign experience utilize political resources more effectively. This study employs data on state-level trade networks and MNC asset procurements in the global mining industry to test these predictions and find support for the model.

Does Being Perceived as Global Pay Off? An Analysis of Leading Foreign and Domestic Multinational Corporations in India, Japan, and the United States

As global players, multinational product and corporate brands are known to have an advantage over local competitors. Although foreign multinational corporations (MNCs) increasingly compete against domestic MNCs, particularly in economically strong countries, little is known about (1) whether foreign MNCs can use their globalness to their advantage and (2) how the perceptions of foreign versus domestic MNCs drive consumer behavior. To examine this issue, the authors propose a framework based on accessibility-diagnosticity theory and test it using consumer data from countries in which leading foreign and domestic MNCs compete. The results show that perceived brand globalness enhances consumers’ intentional loyalty toward MNCs indirectly by affecting the functional and psychological value these MNCs offer. The value-creation routes change according to firms’ origins—that is, foreign MNCs translate globalness through functional and psychological value, while domestic MNCs translate globalness through psychological value. However, the benefits of being global and the value-creation routes for foreign (vs. domestic) MNCs differ between countries. Finally, high consumer ethnocentrism weakens—but does not completely erase—the effects of perceived brand globalness in all countries and interacts with MNCs’ origins.