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- W2058598191 abstract "ownership vector is predetermined at a fixed level, then market values cannot be maximized independently and a compensation principle is required. It will be shown in this comment that when Adler's assumption of (segmented but) perfectly competitive national markets obtains, so that the operating profit of the jth firm is a stochastic constant returns to scale function of invested capital', the market value of the subsidiaries will be independent of the multinational firm's ownership and the multinational firm's optimal ownership vector will be indeterminate thereby obviating the necessity of a compensation principle and allowing for a decentralization of decision-making. Our conclusions in contrast to Adler's should hardly be surprising. Perfectly competitive national markets ensures that the productivity of each dollar invested in a given industry will be the same regardless of who undertakes the investment. Thus, so long as the multinational firm does not impact on the productive opportunity set of the sub-sidiaries' local investors, i.e., that technology is fixed within national borders, then the independence of the market value of the subsidiary from the multinational firm's ownership necessarily follows. One should not infer from this independence result however, that in segmented markets multinational firms have no role to play. Quite the contrary is true. Provided multinational firms are not subject to the same capital flow restrictions as individual investors and even though national markets remain perfectly competitive, maximizing behavior on the part of multinational firms (i.e., acting as arbitragers) will bring risk-adjusted rates of return into equality much as if a unified rather than a segmented market prevailed. Hence a raison d'etre for the multinational firm when markets are segmented." @default.
- W2058598191 created "2016-06-24" @default.
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- W2058598191 date "1977-09-01" @default.
- W2058598191 modified "2023-09-24" @default.
- W2058598191 title "THE COST OF CAPITAL AND VALUATION OF A TWO-COUNTRY FIRM: COMMENT" @default.
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- W2058598191 doi "https://doi.org/10.1111/j.1540-6261.1977.tb03334.x" @default.
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