¹George Washington University, School of Business, Washington, USA

Correspondence: P Dastidar, George Washington University, School of Business, 2201 G Street, Funger Hall 401, Washington, DC 20052, USA. Tel: +1 202 994 1219; Fax: +1 202 994 7422; E-mail: Dastidar@gwu.edu

Received 18 August 2006; Revised 5 October 2007; Accepted 15 October 2007; Published online 31 July 2008.

Abstract

This paper presents new evidence on US multinational firms and shows that the decision to diversify internationally is endogenous, and depends on firm, industry, and home-country characteristics. US multinational firms are a self-selected sample, and firms that are more likely to diversify internationally have lower firm values. Contrary to the global diversification discount literature, multinational firms are valued at a premium after controlling for the endogeneity of the global diversification (foreign direct investment-FDI) decision. These results parallel the industrial diversification literature and underline the importance of controlling for endogeneity when examining the impact of international diversification on firm value.