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Do multinational and domestic corporations differ in their leverage policies?

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  • Park, Soon Hong
  • Suh, Jungwon
  • Yeung, Bernard

Abstract

This paper examines the leverage policies of multinational corporations (MNCs) in comparison to those of domestic corporations (DCs). Prior studies document that MNCs have lower leverage levels. However, our analysis of U.S. firms over the period 1981–2010 reveals that the leverage levels of MNCs are not significantly lower than those of DCs if we control for key firm characteristics related to leverage levels. We also find that MNCs and DCs do not differ significantly in terms of their debt maturity structure, the speed of leverage adjustments, or the propensity to issue debt vs. equity (or vs. not to issue debt). The results suggest that MNCs' financial policies at the corporate level are not significantly influenced by their greater exposures, in comparison to DCs, to market imperfections such as taxes and regulations. Interestingly, however, our additional analysis of MNCs from outside the U.S. reveals that non-U.S. MNCs issue securities more frequently and adjust leverage faster than their domestic peers.

Suggested Citation

  • Park, Soon Hong & Suh, Jungwon & Yeung, Bernard, 2013. "Do multinational and domestic corporations differ in their leverage policies?," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 115-139.
  • Handle: RePEc:eee:corfin:v:20:y:2013:i:c:p:115-139 DOI: 10.1016/j.jcorpfin.2012.08.001
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    2. Fernandes, Nuno & Gonenc, Halit, 2016. "Multinationals and cash holdings," Journal of Corporate Finance, Elsevier, pages 139-154.
    3. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of leverage on performance: Domestically-oriented versus internationally-oriented firms," Research in International Business and Finance, Elsevier, pages 265-280.
    4. repec:eee:corfin:v:44:y:2017:i:c:p:308-330 is not listed on IDEAS
    5. repec:eee:corfin:v:46:y:2017:i:c:p:77-96 is not listed on IDEAS
    6. Cho, Seong-Soon & El Ghoul, Sadok & Guedhami, Omrane & Suh, Jungwon, 2014. "Creditor rights and capital structure: Evidence from international data," Journal of Corporate Finance, Elsevier, pages 40-60.
    7. Ge, Wenxia & Kim, Jeong-Bon & Li, Tiemei & Li, Yutao, 2016. "Offshore operations and bank loan contracting: Evidence from firms that set up subsidiaries in offshore financial centers," Journal of Corporate Finance, Elsevier, pages 335-355.

    More about this item

    Keywords

    Multinationals; Capital structure; Speed of leverage adjustment; Security issuance;

    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
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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