Firm-Specific Resources, Financial-Market Development and the Growth of U.S. Multinationals

We study the resource allocation decisions of U.S. multinational corporations (MNCs). We examine how established MNCs grow across countries and how firm-specific resources and host country financial-market development influence MNC growth. We find evidence of intra-firm trade-offs to growth in MNCs that have limited organizational capital and high R&D, and MNCs with low external and internal financing. In countries with less developed capital markets, we find significant within-MNC trade-offs to growth between affiliates and their U.S. parents. These trade-offs diminish over time as local capital markets develop. Our evidence indicates that access to financing and organizational capital are important resources for MNC affiliate growth.