Equity Valuation Effects of Foreign Capital Expenditures: The Role of Property Rights

Authors

  • Philip C. English II Texas Tech University, United States
  • William T. Moore University of South Carolina, United States

DOI:

https://doi.org/10.32890/ijbf2003.1.1.1

Abstract

We examine common stock price reactions to offshore capital expenditures undertaken by U.S. multinational firms. Arguments based on optionality and expropriability lead to predicted price reactions conditioned on the degree of ambiguity in property rights enforcement in the host country. Our findings based on 159 foreign investment decisions reveal a significant influence of property rights ambiguity on the valuation effect. For investment in countries where property rights are enforced as reliably as in the U.S., firms experience an average increase in equity value of $41.83 million, or $1.614 per dollar invested. For countries with greater ambiguity in enforcement, firms experience an average loss of $39.28 million. Controlling for risk, leverage and differential taxes, we find that property rights ambiguity is the dominant explanatory factor for the market’s reaction to these decisions.

 

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Published

17-03-2003

Issue

Vol. 1 No. 1 (2003): International Journal of Banking and Finance (IJBF) Vol. 1, No.1, 2003

Section

Articles

How to Cite

English II, P. C., & Moore, W. T. (2003). Equity Valuation Effects of Foreign Capital Expenditures: The Role of Property Rights. International Journal of Banking and Finance, 1(1), 1-21. https://doi.org/10.32890/ijbf2003.1.1.1

Research impact

Harvested 2026-09-07
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Identifiers DOI 10.32890/ijbf2003.1.1.1 OpenAlex W99419520