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Multinationality and firm value: The role of real options awareness

Sophocles Ioulianou, Lenos Trigeorgis and Tarik Driouchi

Journal of Corporate Finance, 2017, vol. 46, issue C, 77-96

Abstract: We contribute to multinationality and real options theories by considering the role of firm heterogeneity in real options awareness for MNCs. We test the joint impact of real options awareness (RO-AWN) and multinationality on firm value using an extensive sample of U.S.-listed international firms over the ten-year period 1996–2005. We show that when a firm's growth options and degree of RO-AWN are considered, multinationality has a significant positive impact on firm value and performance as measured by Tobin's Q, return-on-assets and the 3-year average stock returns. We find that the benefits of multinationality accrue asymmetrically to firms differing in RO-AWN. Managers who are more aware of their corporate real options are able to significantly enhance firm value. Our findings are robust to a range of dataset and measurement specifications, endogeneity issues and controlling for alternative theories of the firm.

Keywords: Real options; Multinationality; Growth options; Management quality; Firm value (search for similar items in EconPapers)
JEL-codes: G30 F23 L25 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:corfin:v:46:y:2017:i:c:p:77-96