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Creditor rights and debt allocation within multinationals

  • Akbel, Basak
  • Schnitzer, Monika

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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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20174.

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Date of creation: 2011
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Publication status: Published in Journal of Banking and Finance 6 35(2011): pp. 1367-1379
Handle: RePEc:lmu:muenar:20174
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