ESSAYS ON MULTINATIONALIZATION AND CORPORATE INVESTMENT POLICY

U.S. MNEs are dominant producers in the economy, yet they invest considerably less and exhibit lower Tobin's q than domestic firms. Counterintuitively, the MNE investment premium mainly realizes as multinationalizing firms sharply reduce investment despite the productivity increase. The first chapter documents this novel fact and explains why MNEs invest less despite higher productivity as a consequence of multinationalization option exercise. Average U.S. public firms hold multinational investment opportunities as large as 40% of assets at the time of multinationalization. The model generates endogenous multinationalization by more productive firms and isolates the pure real option effect that explains MNE investment premium. Investment regressions ignoring commonly priced large-scale options such as multinationalization mistakenly suggests secular underinvestment for the most productive group of firms. Multinationalization is a common, large, and permanent corporate investment mechanism, and multinational status places one of the most informative observable for the optimal investment policy.

Domestic firms become considerably different in many aspects (e.g. size, profitability, and investment) as they transition to be multinational enterprises. The second chapter documents that multiple dimensional shifts of multinationalization dynamics spilling over to the aggregate realm as a large mass of U.S. firms multinationalized in the late-1990s. The mass-multinationalization hypothesis jointly explains recently raised pressing puzzles of aggregate movements of investment, q, and profitability while remaining consistent with the documented secular agglomeration patterns. Evidence also shows that multinationalization may further explain the dynamics of intangible, labor, and capital shares of production, increasing concentration, and market power. Mass-multinationalization of the late-1990s transmitted large firm-level dynamics of multinationalization events to the aggregate-level. The mass-multinationalization looks to be triggered by a substantial improvement in the incentive to integrate foreign demand chain for the U.S. products and services, rather than foreign supply chains which grew during the mid-2000s. The mass-multinationalization hypothesis is a firm-level and action-based mechanism that rationalizes the joint dynamics of secular movements without alternative explanations suggested in the literature.