SUMMARY

Internalization theory implies that geographic diversication is valuable

when the benets from the creation of intra-rm markets for the
transfer of rm-specic intangible assets related advantages across
borders, that bypass incomplete or non-existent external markets,
exceed the organizational and agency costs associated with doing
business in foreign countries.
Reporting a business segment in the nancial services sector is also
indicative of a greater likelihood that the rm has the ability to interact
with nancial markets, bypass capital market segmentation, and
monitor for nancial arbitrage opportunities.
Our investigation extends the literature by examining the relationship
between intangibles associated with nancial expertise and market
valuation of MNCs. We nd that, on average, in the absence of nancial
sector diversication, the market values of domestic rms are
signicantly higher than those of MNCs. However, among rms with
nancial expertise, the mean Q of MNCs is signicantly greater than
that of domestic rms.
More recently, "Stein" argued that internal capital markets bypass the
informational inequality of external capital markets.
Empirical work on internal capital markets has provided some insight
into the efciency of these markets to allocate resources compared to
external capital markets.
The disparity between markets magnies the potential inefciencies of
the internal capital market leading to a greater potential for loss in
value for MNCs. The inefciency in internal capital markets can be used
to help explain why multinational rms have often been found to sell at
a discount relative to their domestic counterparts.
Diversication in the nancial sector, and the associated nancial
expertise, might help MNCs to overcome the agency issues associated
with internal capital markets and create value by arbitraging across
incomplete nancial markets.
Multinational rms have access to more markets for their goods

allowing them to leverage their intangible assets across more markets.

Reporting a business segment in the nancial services sector is also
indicative of a greater likelihood that the rm has the ability to interact
with nancial markets at home and abroad, can bypass capital market
segmentation caused by regulation and/or investor perceptions, and
monitor the investments' horizon for nancial arbitrage opportunities.