Despite the Theoretical Elegance of This Hypothesis, Empirical Studies Have

question 62

Multiple Choice

Despite the theoretical elegance of this hypothesis, empirical studies have come to the opposite conclusion. Despite the favorable effect of international diversification of cash flows, bankruptcy risk was only about the same for MNEs as for domestic firms. However, MNEs faced higher costs for each of the following EXCEPT:

• A) agency costs.
• B) political risk.
• C) asymmetric information.
• D) In fact, each of these costs were higher for the MNE than for the domestic firm.

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Definitions:

Free Radical

Atom with an unpaired electron. Most are highly reactive.

Hydrogen Bonds

Weak bonds between two molecules caused by the electrostatic attraction between a proton in one molecule and an electronegative atom in the other.

Hydrophobic

Relating to or having a fear of water; in chemistry, refers to substances that repel water.

Vibrating Electrons

Electrons in motion, typically referring to the movement within atomic or molecular orbitals which can lead to the emission of photons.