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:

Product Differentiation

Making a product or service stand out to a particular target market by distinguishing it from competitors.

Profit-Maximizing Firms

Companies that operate with the goal of making the highest possible profit from their activities.

Marginal Cost

The cost incurred by producing one additional unit of a product or service.

Downward-Sloping Demand

A concept in economics that illustrates how demand for a good or service decreases as the price increases, assuming all other factors remain constant.