Return on capital analysis: U.S.- based multinational corporations versus U.S. domestic corporations

We study the difference between U.S.-based multinational corporations (MNCs) and U.S.domestic corporations (DCs) in terms of management efficiency with return on capital as the measure of management efficiency. We use a fixed effect model to account for heterogeneity and/or the time-specific effect and find that MNCs have lower management efficiency than DCs, which holds after we control for the effects of firm size, GDP growth rate, and growth opportunity on management efficiency. One reason for the low efficiency is the MNCs' inability to manage their assets well relative to DCs. We also find that there is an inverted U-shaped relationship between return on capital and degree of internationalization, which implies an optimal degree of internationalization. Our result does not confirm the recently proposed three-stage model. (C) 2011 Elsevier B.V. All rights reserved.