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Learning and Information Transmission within Multinational Corporations

Author

Listed:
  • Cheng Chen
  • Chang Sun
  • Hongyong Zhang
Abstract
We propose that multinational firms learn about their profitability in a particular market by observing their performance in nearby markets. We first develop a model of firm expectations formation with noisy signals from multiple markets and derive predictions on expectations formation and market entries. Using a dataset of Japanese multinational corporations that includes sales expectations of each affiliate, we provide evidence supporting the model’s 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 markets where signals are extracted.

Suggested Citation

  • Cheng Chen & Chang Sun & Hongyong Zhang, 2020. "Learning and Information Transmission within Multinational Corporations," CESifo Working Paper Series 8477, CESifo.
    • Handle: RePEc:ces:ceswps:_8477
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    2. Facundo Albornoz & Hector F. Calvo Pardo & Gregory Corcos & Emanuel Ornelas, 2021. "Sequential exporting across countries and products," CEP Discussion Papers dp1774, Centre for Economic Performance, LSE.
    3. Ding, Yibing & Li, Jing & Tian, Yuqi, 2024. "The short and long-term effects of cross-border M&A network on Chinese enterprises’ green innovation," Economic Modelling, Elsevier, vol. 134(C).
    4. Jackie M. L. Chan & Chih‐Sheng Hsieh, 2022. "Cross‐border networks and knowledge spillovers for foreign entry," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1730-1756, October.

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    More about this item

    Keywords

    multinational production; learning; expectations formation; information transmission;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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