The differential effects of agency costs on multinational corporations

This study develops arguments explaining why agency costs are more pronounced for firms with higher degrees of multinational business. Empirical tests are conducted to determine whether firms with more exposure to foreign markets have greater agency costs than less exposed firms. Specifically, valuation effects of security offerings are assessed cross-sectionally to determine whether the change in the firm's value attributed to agency costs is associated with the firm's degree of international business. It was found that valuation effects associated with security offering announcements are more negative for firms with higher degrees of international business, which supports the hypothesis presented. The results suggest that better monitoring could be especially beneficial to MNCs with large exposure to foreign markets.

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