HCBE Faculty Articles

Title

Cultural Differences and Their Effects on Knowledge Assets and U.S. MNCs' Firm Value: A Three-Model Approach

Document Type

Article

Date

2011

Publication Title

Journal of International Finance Studies

ISSN or ISBN

2378-8674

Volume

11

Issue

3

First Page

53

Last Page

75

Description

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.

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