Learning and Information Transmission within Multinational Corporations

Speaker: Chang Sun, University of Hong Kong

Discussant: Ayumu Ken Kikkawa, University of British Columbia

Time: June 18, 2020    09:00 AM    (GMT+8:00)

Venue: Online

Abstract:

We propose that multinational firms learn about their profitability in a particular market by observing their performance in similar markets. We first develop a model of firm expectations formation with noisy signals from multiple markets and derive robust and unambiguous predictions on expectations formation and market entries. Using a unique dataset of Japanese multinational corporations in which we observe sales expectations of each affiliate, we provide strong evidence supporting the model predictions. We find that a positive signal about demand inferred from nearby markets raises the probability of entry into a new market, or raises the firm’s sales expectation in an existing (focal) market. The latter effect is stronger when (1) the firm is less experienced in the focal market (2) the signals from the focal market are noisier and (3) the firm is more experienced in similar markets where signals are extracted.

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