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Debt Financing and Sharp Currency Depreciations: Wholly vs. Partially Owned Multinational Affiliates

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  • Shafik Hebous
  • Alfons Weichenrieder

Abstract

This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, wholly-owned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-12/cesifo1_wp2892.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2892.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2892

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Related research

Keywords: foreign direct investment; capital structure; ownership structure; currency crises; corporate taxation;

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References

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  1. Schindler, Dirk & Schjelderup, Guttorm, 2008. "Multinationals, Minority Ownership and Tax-Efficient Financing Structures," Discussion Papers 2008/19, Department of Business and Management Science, Norwegian School of Economics.
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Citations

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Cited by:
  1. Matthias Stöckl & Hannes Winner, 2013. "Koerperschaftsbesteuerung und Unternehmensverschuldung: Evidenz aus einem Europaeischen Firmenpanel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 188-205, March.
  2. Robert Krämer & Vilen Lipatov, 2013. "The Effect of Corporate Taxation and Ownership on Raising Shareholder Capital," CESifo Working Paper Series 4436, CESifo Group Munich.
  3. Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers 422, WIFO.

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