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Creditor Rights and Debt Allocation within Multinationals

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  • Schnitzer, Monika
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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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  • Schnitzer, Monika & ,, 2010. "Creditor Rights and Debt Allocation within Multinationals," CEPR Discussion Papers 7958, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7958
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    8. Michael Overesch & Georg Wamser, 2014. "Bilateral internal debt financing and tax planning of multinational firms," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 191-209, February.
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    10. Ruth V. Aguilera & Valentina Marano & Ilir Haxhi, 2019. "International corporate governance: A review and opportunities for future research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 457-498, June.
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    More about this item

    Keywords

    Capital structure; Coinsurance; Creditor rights; Internal capital markets; Multinational corporations;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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