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Multinational Affiliates and Local Financial Markets

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Author Info

  • Selin Sayek
  • Alexander Lehmann
  • Hyoung Goo Kang

Abstract

We use data on the sources of debt finance of U.S. majority-owned foreign affiliates in 53 countries over the period 1983 to 2001 to examine the role of financial market development, and exposure to host country-specific risk on the financing choices of these affiliates. We find that total balance sheets are about four times as large as the cross-border component of foreign direct investment (FDI). The extent of financial leverage through local debt is positively related to host-country corporate tax rates, exchange rate variability, local currency-denominated sales, and financial development. Factors that further the role of local debt reduce that of parent company debt, and through this substitution overall leverage increases.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/107.

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Length: 26
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/107

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Related research

Keywords: Foreign investment; Debt refinancing; Domestic debt; Data analysis; Tax rates; Exchange rate variability;

This paper has been announced in the following NEP Reports:

References

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  1. Harrison, Ann E. & McMillan, Margaret S., 2003. "Does direct foreign investment affect domestic credit constraints?," Journal of International Economics, Elsevier, vol. 61(1), pages 73-100, October.
  2. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc.
  3. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
  4. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Dividend Policy inside the Firm," NBER Working Papers 8698, National Bureau of Economic Research, Inc.
  5. Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(4), pages 675-697, December.
  6. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  7. Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2005. "World market integration through the lens of foreign direct investors," Journal of International Economics, Elsevier, vol. 66(2), pages 267-295, July.
  8. repec:imf:imfwpa:92/20 is not listed on IDEAS
  9. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02.
  10. Du, Julan, 2003. "Why do multinational enterprises borrow from local banks?," Economics Letters, Elsevier, vol. 78(2), pages 287-291, February.
  11. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  12. Alexander Lehmann & Ashoka Mody, 2004. "International Dividend Repatriations," IMF Working Papers 04/5, International Monetary Fund.
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Citations

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Cited by:
  1. Shafik Hebous & Alfons Weichenrieder, 2009. "Debt Financing and Sharp Currency Depreciations: Wholly vs. Partially Owned Multinational Affiliates," CESifo Working Paper Series 2892, CESifo Group Munich.
  2. Akbel, Basak & Schnitzer, Monika, 2010. "Creditor Rights and Debt Allocation within Multinationals," CEPR Discussion Papers 7958, C.E.P.R. Discussion Papers.
  3. Beugelsdijk, S. & Hennart, J.M.A. & Slangen, A.H.L. & Smeets, R., 2010. "Why and how FDI stocks are a biased measure of MNE affiliate activity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3982853, Tilburg University.
  4. Spaseska Kitanovic, Violeta & Kozuharov, Saso, 2012. "The International Monetary Fond As A Creator Of The Global Financial System," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 3(1), pages 83-90.

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