Capital Budgeting and the Multinational Corporation

by Arthur Stonehill, Leonard Nathanson



This article presents a survey of the methods being used by firms to evaluate multinational financing investments and suggests solutions to certain problems which occur when the theory of capital budgeting is applied to multinational operations. It is suggested that the principal differences between the multinational and uninational cases were caused by dissimilarities in financial attitudes, institutions, legal systems, governmental policies, and other environmental variables. Operational foreign investment criteria must be established which are consistent with a behavioral theory of the firm. Maximization of market value of common stock has serious defects as an operational criterion for multinational investment decisions.

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