DO MULTINATIONALS OPERATE FLEXIBLY - THEORY AND EVIDENCE

Do multinational enterprises operate flexibly, i.e., do they shift pro duction in response to currency changes? Three theoretical perspective s are developed. Flexibility optimism, premised on information and sun k cost advantages, takes a macro efficiency perspective and predicts s izable responses. Flexibility pessimism, premised on inertia and inter nal opportunism, takes an organizational perspective and predicts stic ky responsce. Flexibility realism, permised on the view that to be fle xible in the current period multinational enterprises need to have pla nned and invested accordingly in previous periods, predicts positive, but relatively modest, responses. Empirical analysis spanning the peri od 1977-1993 finds that multinational enterprises systematically explo it currency shifts, but even in the face of large exchange rate change s, their operational responses are relatively modest. The results appe ar most consistent with flexibility realism, and this hypothesis is se lected over the alternatives considered.