BUS613: Advanced International Business

We have employed multiple regression, robust regression, random and fixed effects models. First model includes only the primary variables of interest. Second model includes the interaction of primary variables as well as their main effects. Third model excludes the outliers. Fourth model is a robust regression excluding the outliers. Fifth model is OLS regression analysis including the industry dummy variables, excluding the outliers. Therefore, the model captures the different industry characteristics. Sixth model is a robust regression of fifth model.

The dependent variable is the performance of the firm and the primary independent variables are R&D expenditure, capital expenditure, and international diversification. Panel data is obtained from COMPUSTAT having multiple year observations of variables for every firm. However, not all firm data has the same time span resulting in unbalanced panel data.

Base Model:

$\mathrm{ROA}_{i}=\alpha+\beta_{1} * \mathrm{RD}_{i}+\beta_{2} * \mathrm{CAP}_{i}+\beta_{3} * \mathrm{DV}+e_{i}$

Model with industry dummies:

$\text { ROA }_{i}=\alpha+\beta_{1} * \mathrm{RD}_{i}+\beta_{2} * \mathrm{CAP}_{i}+\beta_{3} * \mathrm{DV}+\mathrm{V}_{\text {ind }}+e_{i}$

Model with interaction terms:

$\begin{aligned} &\operatorname{ROA}_{i}=\alpha+\beta_{1} * R D_{i}+\beta_{2} * \operatorname{CAP}_{i}+\beta_{3} * \mathrm{DV}_{i} \\ &+\beta_{4} * \mathrm{RD}_{i} * \mathrm{CAP}_{i} \quad+\beta_{5} * \mathrm{RD}_{i}{ }^{*} \mathrm{DV}_{i}+\beta_{6} * \mathrm{CAP}_{i} * \mathrm{DV}_{i}+e_{i} \end{aligned}$

Where;

$\mathrm{ROA}_{\dot{i}}$: Return on assets of a firm at time i.
$\mathrm{RD}_{i}$:R&D expenditure / Total Sales at time i.
$\mathrm{CAP}_{i}$: Capital expenditure / Total Sales at time i.
$\mathrm{DV}_{i}$: Foreign sales / Total sales at time i.
$\mathrm{V}_{\text {ind }}$: Industry dummy variables.
$e_{i}$: Error term.

Models have used these two diversification measures separately, reporting the generated outcomes for each measure and for a composite of the two measures. The composite measure is simply the average of two proportions: foreign sales to total sales and foreign assets to total sales.