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The Operational Hedging Properties of Intangible Assets: the Case of Non–voluntary Foreign Asset Selloffs
Author(s) -
Doukas John A.,
Padmanabhan Prasad
Publication year - 2002
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/1467-646x.00084
Subject(s) - business , multinational corporation , intangible asset , valuation effects , valuation (finance) , asset (computer security) , fixed asset , foreign direct investment , finance , monetary economics , assets under management , intangible property , economics , property rights , microeconomics , computer security , production (economics) , computer science , macroeconomics
In this paper we examine the valuation effects and long–term performance of US multinational firms involved in forced transfers of their foreign operating assets during the 1965–88 period. The evidence suggests that the operational hedging ability of the firm to address country risk (nationalization threats) is related to the level of its intangible assets. While it is well known that firms with high levels of intangible assets prefer foreign direct investment, our results show that intangible assets have hidden properties of protection against country risk as well. We document significantly negative abnormal returns only for divesting firms with low levels of intangible assets, but not for firms with high levels of intangible assets. In addition, we show that low (high) growth firms are involved in partial (complete) withdrawals, and show that the long–term economic performance of firms choosing the complete withdrawal strategy is better than those that opt to remain. We argue that management’s attempt to maintain economic links in a hostile foreign environment can be attributed in part to the firm’s low growth opportunities, performance, and lack of contingent plans to address country risk.