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Operational flexibility and market valuation of earnings

โœ Scribed by Charles Y. Tang; Surinder Tikoo

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
84 KB
Volume
20
Category
Article
ISSN
0143-2095

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โœฆ Synopsis

This paper examines the association between the stock returns and accounting earnings of firms that have different levels of operational flexibility. Operational flexibility is a firm's ability to respond profitably to environmental fluctuations by shifting factors of production within a multinational network of subsidiaries. The geographic breadth and depth of a firm's multinational network are used as indicators of operational flexibility. We find a significantly greater coefficient relating stock returns and accounting earnings for multinational firms that operate in many countries, but limit their concentration in any one foreign country, than for other multinational firms or domestic firms. This coefficient is significantly smaller for multinational firms whose foreign subsidiaries are highly concentrated in a few countries. When all multinational firms are pooled together, we find their earnings-returns association does not differ from that of domestic firms.

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