Firm - Specific Resources , Financial - Market Development and the Growth

We study the resource allocation decisions of U.S. multinational corporations (MNCs). We examine how established MNCs grow across countries and how firm-specific resources and host-country financial-market development influence MNC growth. We find no evidence of within-firm tradeoffs to growth in MNCs with greater measures of organizational capital, knowledge resources and access to financing. However, when these resources are in scarce supply, our evidence suggests MNC growth involves trade-offs between divisions. These trade-offs also vary with host-country financial market development. In countries with less developed capital markets, we find significant withinMNC trade-offs to growth between affiliates and their U.S. parents for smaller MNCs. These trade-offs sharply diminish as local capital markets undergo financial-market liberalizations. Comments Welcome NBER Working Paper #9252 Current draft: September 1, 2003 ∗R.H. Smith School of Business, University of Maryland. Feinberg can be contacted at (301) 405-2251, email [email protected]. Phillips can be contacted at (301) 405-0347, email [email protected]. We wish to thank Mihir Desai, Wayne Ferson, Robert McDonald, Vojislav Maksimovic, Raymond Mataloni, John Popham, Lemma Senbet, Scott Shane, Peter Wysocki, Bernie Yeung, William Zeile, and seminar participants at Boston College, the Center for Economic Studies, Department of Commerce, Duke University, MIT finance and organizations seminars, Tulane University and the University of South Carolina and the 2003 Western Finance Association meeetings for helpful comments. We conducted our statistical analysis of firm-level data on U.S. multinational corporations reported in this study at the International Investment Division, Bureau of Economic Analysis, U.S. Department of Commerce, under arrangements that maintained legal confidentiality requirements. The views expressed are those of the authors and do not necessarily reflect those of the Department of Commerce. Firm-Specific Resources, Financial Market Development and the Growth of U.S. Multinationals