Innovation Efficiency, Global Diversification, and Firm Value

56 Pages Posted: 20 Sep 2013 Last revised: 5 Dec 2014

See all articles by Wenlian Gao

Wenlian Gao

Central University of Finance and Economics

Julia Chou

Florida International University

Date Written: November 2014


This paper investigates whether multinational firms are less or more efficient in innovation activities than domestic firms. Using patents and citations scaled by R&D expenses and R&D capital as measures of innovation efficiency, we find that multinational firms have lower levels of innovation efficiency than purely domestic firms. This finding has been supported by additional evidence using peer pressure as an exogenous shock to firms' strategy of going internationalization. We also find that information asymmetry and the low cost of capital could be the major channels through which global diversification impacts innovation efficiency adversely.Our results further suggest that innovation efficiency is more valuable to multinational firms which mainly diversify into developed markets or markets with better patent protection.

Keywords: Global Diversification, Innovation Efficiency, Multinational Firms, Firm Value

JEL Classification: F23, F30, G15, G32, O32

Suggested Citation

Gao, Wenlian and Chou, Wen-Hsiu, Innovation Efficiency, Global Diversification, and Firm Value (November 2014). Available at SSRN: or

Wenlian Gao (Contact Author)

Central University of Finance and Economics ( email )

39 South College Road
62289220 (Phone)

Wen-Hsiu Chou

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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