Multinationality as real option facilitator - Illusion or reality?

- Multinationality facilitates real options.
- Financial constraints reduce the impact of multinationality on growth options.
- The facilitation of real options stabilizes at high levels of multinationality.

Previous literature provides multiple conflicting arguments on why and when multinationality should enhance or impede the value-relevance of firms' real options. We address this issue by examining whether the relationship between stock returns and changes in return volatility varies with multinationality. Our results indicate that multinationality does indeed act as a real option facilitator. Furthermore, we show that, consistent with the notion that there are limits to the operating flexibility associated with multinationality this benefit only accrues fully if the firm is not financially constrained and stabilizes at very high degrees of multinationality.