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Abstract
A quarter of a century has passed since Stonehill and Nathanson (1968) surveyed multinational companies to determine their foreign capital budgeting practices. Since then, research has not only refined its theoretical base on this subject but also expanded the knowledge of actual practices by multinational companies. This article summarizes the findings of major multinational capital budgeting studies for the last 25 years to ascertain whether companies followed theoretically prescribed approaches. Then, it suggests further research to advance the knowledge on this subject.
Introduction
Although business operations in countries across the globe have existed for centuries, the world has recently entered an era of unprecedented activity in the areas of worldwide production and distribution. In the 1990s the world reached a climax in this drama of economic change. No one can deny the effects of these changes in the hope for peace and prosperity: political and economic freedom in Eastern Europe; the successful completion of the Uruguay Round under the auspice of the General Agreement on Tariffs and Trade (GATT); the emergence of market-oriented economies in many developing countries; the attempts to create a single European market, the formation of trading blocs, such as the North American Free Trade Agreement; and the reduction of national trade barriers.
There are also many examples of the growing importance of international operations for individual companies. Mobil Oil, Texaco, Gulf Oil, Dow Chemical, Coca-Cola, and American Express earn more than 60 per cent of their total operating profits in international operations. Multinational companies, such as Mobil, British Petroleum, IBM, American Express, and Sony do business with more than 50 countries around the world (Kim & Kim, 1993).
World trade exceeded $7 trillion in 1991 (IMF Survey, 1992). U.S. exports and imports have increased more than ten times in the last two decades. U.S. direct investments abroad increased from $32 billion in 1960 to $450 in 1991, while foreign direct investments in the United States increased from $7 billion in 1960 to $408 billion in 1991 (The U.S. Department of Commerce, 1992). By the same token, global corporate finance has also become important as it serves world trade and foreign investment. International earning assets for the Bank of America, for example, represent more than half of its total...