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Capital structure, dividend policy, and multinationality: Theory versus empirical evidence

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  • Aggarwal, Raj
  • Kyaw, NyoNyo Aung

Abstract

Textbook theory posits that multinational firms are large and diversified and should have higher debt capacity. In contrast, debt capacity of such firms can be expected to be lower because of the additional risks of foreign operations. This puzzle is unresolved by the empirical literature. Also, prior studies of multinational firms have not examined the relationship between debt and dividend payout ratios that can be expected in theory (both help manage agency costs). Accounting for this interdependence and controlling for appropriate other variables, this study documents that compared to domestic companies, multinational companies have significantly lower debt ratios with such debt ratios decreasing with increasing multinationality.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 19 (2010)
Issue (Month): 2 (March)
Pages: 140-150

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Handle: RePEc:eee:finana:v:19:y:2010:i:2:p:140-150

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Web page: http://www.elsevier.com/locate/inca/620166

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Keywords: Multinational companies Dividend policy Capital structure Multinationality Debt Endogeniety Simultaneous equations;

References

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Citations

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Cited by:
  1. Guney, Yilmaz & Li, Ling & Fairchild, Richard, 2011. "The relationship between product market competition and capital structure in Chinese listed firms," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 41-51, January.
  2. Tse, Chin-Bun & Rodgers, Timothy, 2011. "Can corporate tax shields explain the long-term borrowing behaviour of Chinese listed firms?," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 103-112, April.
  3. Dirk Schindler & Guttorm Schjelderup, 2013. "Transfer Pricing and Debt Shifting in Multinationals," CESifo Working Paper Series 4381, CESifo Group Munich.
  4. Tucker, Jon & Stoja, Evarist, 2011. "Industry membership and capital structure dynamics in the UK," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 207-214, August.
  5. Reza Zare & Javad Moradi (Ph.D) & Hashem Valipour(Ph.D), 2013. "Dividend Policy and Information Asymmetry from the Signaling Perspective," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(4), pages 445-463, April.
  6. Schindler, Dirk & Møen, Jarle & Schjelderup, Guttorm & Tropina, Julia, 2013. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79749, Verein für Socialpolitik / German Economic Association.

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