The measurement of the degree of foreign involvement

This paper extends Errunza and Senber (1984) in assessing the relationship between alternative measures of the degree of foreign involvement (DFI) and the conditions under which the use of a specific measure will not affect the outcome of empirical studies on corporate international diversification. The results suggest that among 21 pairs of seven most widely used series of DFI, only three series (foreign assets, foreign earnings and foreign tax ratios) in two pairs are equivalent. Evidence of constant returns to scale between the ratio of foreign to total assets and the ratio of foreign to total earnings is also discussed.