Cultural Differences and Their Effects on Knowledge Assets and U.S. MNCs' Firm Value: A Three-Model Approach
Journal of International Finance Studies
ISSN or ISBN
This study examines the effect of cultural differences (CD) between U.S. multinational companies (MNCs) and their foreign subsidiaries on the firm value of the U.S. parent companies. Three different valuation models are used to test for consistency in the findings: (1) Tobin's Q, (2) Discounted Cash Flow (DCF), and (3) Market Value Added (MVA). The analysis using Tobin's Q found an inverse relationship between CD and firm value. In contrast, the DCF and MVA models indicated a direct relationship. Our findings suggest that CD has a relationship with the U.S. parent company's firm value, but leave open the question of direction. The analysis reveals that risks or rewards can result from the exchange of knowledge and other intangible assets, and points to DCF as the optimal model for assessing the effects of cultural distance on firm value.
Norton, Kenneth M.; Yatrakis, Pan G.; and Jones, J. Preston, "Cultural Differences and Their Effects on Knowledge Assets and U.S. MNCs' Firm Value: A Three-Model Approach" (2011). HCBE Faculty Articles. 1087.