The effectiveness of international diversification of companies from BRIC countries - Курсовая работа

(2006), the relationship between international diversification and performance is analyzed in two paradigms. (2007), Bobillo et al. (2010), Rugman and Chang (2010) Financial efficiency WACC and other cost-of-capital related measures Singh and Nejadmalayeri (2004), Joliet and Hubner (2006) Measures reflecting expectations Operational and financial efficiency Tobin’s Q, P/E, market-to-book ratio Chang and Wang (2007), Rugman and Chang (2010) As shown in Table 1, there are typically two types of corporate performance indicators: 1. The current company’s performance constitutes the first group of measures. Those parameters describe company’s efficiency during a certain time period not exceeding one year. However they do not capture expectations about corporate performance in the future. This group is then segmented in two categories: operational and financial efficiency indicators. 2. Future company’s performance is considered in the second group of efficiency characteristics. These measures are a combination of accounting parameters and market data. The first group of measures is criticized for their inability to simultaneously take into account both operational and financial aspects of cross-border diversification. Indeed operational benefits of internationalization should not be outweighed by unfavorable change in the cost of capital. Therefore in order to resolve this problem we implement a new approach of economic profit concept. Since this measure accounts for operational efficiency and the risks resulting from international diversification, presented by the cost of capital, it can be considered as a strategic performance measure. The economic profit or residual income is estimated as follows: (1) where RI is the company’s residual income, ROCE - return on capital employed, WACC - weighted average cost of capital, CE - capital employed. In order to estimate the relationship between internationalization and performance, we use the ratio of residual income to capital employed as a proxy for economic profit. Thus, we need to estimate both ROCE and WACC as functions which are dependent on degree of internationalization (DOI) and other explanatory variables. Using the measures of internationalization and performance listed previously in this section, the researchers obtained different and often contradictory results. Some of them, which were derived when analyzing companies from developing markets, are presented in Table 2. The table presents the most frequently used combinations of internationalization - performance variables among scholars, as well as the derived relationships. Table 2. The results of the developing countries analysis Paper Sample Performance variable DOI variable Relationship Thomas (2005) 500 Mexican firms 1994-2001 ROS FSTS U-shaped curve Chen, Tan (2012) 887 Chinese firms 2000-2012 Tobin’s Q FSTS Linear negative RSTS (regional sales to total sales) U-shaped curve RSTS (Intragreater China) S-shaped curve Singla, George (2013) 237 Indian firms 2002-2008 ROA, Tobins Q FSTS No relationship Composite index (FSTS, FATA, OSTS, scope) Negative linear Xiao et al. (2013) 114398 Chinese firms 2001-2007 ROA FSTS S-shaped curve We observe that the analysis of Indian companies by using both operational and financial measures of efficiency, has shown no relationship between internationalization and performance. For Chinese and Mexican companies there is evidence of a non-linear curve shape when using operational performance measures. Among the most interesting conclusions, we should mention the paper of Chen and Tan (2012), where the authors derived different internationalization-performance relationships for each of the three DOI measures.