Hysteresis and the value of the US multinational corporation

This article examines the value of international operations to the U.S. multinational corporation during a period of exchange rate volatility and uncertainty. Rather than enhancing firm value, international operations during the 1980s are found to be associated with decreased firm value, with the greatest decreases occurring when the dollar was strongest. This evidence is consistent with recent models that predict a connection between sunk costs and hysteretic pricing behavior in foreign markets.