The risk implications of multinational enterprise
International Journal of Organizational Analysis
ISSN: 1934-8835
Article publication date: 15 March 2011
Abstract
Purpose
Multinational structure has been linked to operational flexibilities that can improve corporate adaptability and a knowledge‐based view suggests that multinational resource diversity can facilitate responsive opportunities. The enhanced maneuverability from this can reduce earnings volatility and hence the corporate performance risk. But, the internationalization process may also require irreversible investments that increase corporate exposures and leave the risk implications of multinational enterprize somewhat ambiguous. Hence, the purpose of the paper is to present an empirical study of the implied relationships between the degree of multinationality and various risk measures including downside risk, upside potential, and performance risk.
Design/methodology/approach
The paper provides a brief literature review, develops hypotheses, and tests them in two‐stage least square regressions on archival data to control for pre‐selection biases.
Findings
The analyses indicate that multinationality is associated with lower downside risk as well as higher upside potential and leads to reduced performance risk. The study finds no trace of diminishing effects from higher degrees of multinationality.
Research limitations/implications
The empirical study uses a sample of large US‐based corporations, which could affect the generalizability of results. However, this is consistent with other studies and eases comparability of findings.
Practical implications
The findings add to the ongoing debate about the risk effects of a multinational corporate structure and confirms that a diverse multinational presence is associated with positive risk outcomes.
Originality/value
The paper complements a limited number of studies with equivocal results and adopts alternative risk outcome measures. The study extends the industry scope by introducing a comprehensive sample of firms operating in different manufacturing and service businesses.
Keywords
Citation
Juul Andersen, T. (2011), "The risk implications of multinational enterprise", International Journal of Organizational Analysis, Vol. 19 No. 1, pp. 49-70. https://doi.org/10.1108/19348831111121303
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited