Foreign Investments Don't Reduce Risk

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Contrary to common business wisdom, American companies don't reduce their financial risks when they expand operations outside the U.S. or establish joint ventures with foreign firms. A study of 332 U.S. manufacturing companies found that those with international joint ventures (IJVs) actually had higher levels of downside risk--a measure of the likelihood that a firm will not meet specified financial performance objectives. The study also found that multinational companies showed no difference in downside risk when compared to firms with just domestic operations.

These results should be surprising to many businesses and economic experts who praise the flexibility and …