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Creditor rights and debt allocation within multinationals

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  • Akbel, Basak
  • Schnitzer, Monika

Abstract

We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that partially centralized borrowing structures are optimal with either weak or strong creditor rights. For intermediate levels of creditor rights fully decentralized (centralized) borrowing structures are optimal if managers have strong (weak) empire-building tendencies. Decentralized borrowing is more attractive for companies focussing on short-term profitability. Credits are rather taken in countries with better creditor rights and more efficient insolvency systems.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 6 (June)
Pages: 1367-1379

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:6:p:1367-1379

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Keywords: Multinational corporations Capital structure Creditor rights Coinsurance Internal capital markets;

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Cited by:
  1. Nejadmalayeri, Ali & Singh, Manohar, 2012. "Corporate taxes, strategic default, and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2900-2916.
  2. Löffler, Clemens & Pfeiffer, Thomas, 2013. "Centralized versus Decentralized External Financing, Winner Picking and Corporate Socialism," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79902, Verein für Socialpolitik / German Economic Association.

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