International corporate diversification and performance: Does firm self-selection matter?

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.