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Abstract
This study empirically examines the influences on firm value of being multinational, and of having extensive international networks spanning diverse host countries, for publicly traded Japanese manufacturing firms.
The value of multinationality is determined, via a new propensity score matching method that controls for self-selection bias, to be a 3.0% premium. The value premium is negatively associated with vertical keiretsu membership, as member suppliers must conform to core firm demands to continuously lower parts prices and absorb cost hikes. Main bank ownership lowers the value premium for horizontal keiretsu members by facilitating over-investment, and for independent MNCs, as the multinational setting allows banks greater scope to extract rents from firms perceived able to manipulate assets. Furthermore, vertical keiretsu membership and main bank ownership positively impact the value of multinationality in developing countries, where MNCs face inadequate infrastructure, unreliable local suppliers, and poorly functioning external capital markets.
Moreover, regulative distance arising from multinational networks, particularly from developing countries, negatively influences firm value. However, advanced country regulative distance boosts value as such countries generally offer higher quality business environments versus Japan. Common law exposure lowers value for horizontal keiretsu members, reflecting their preferences for less transparent operating environments that are at odds with common law. Furthermore, interactions of vertical keiretsu membership and main bank ownership with regulative distance positively affect value—the former via transplantation of group operations abroad and core firms' influence with host governments, and the latter by facilitating adaptation to differing host country institutional regimes.
