Capital structure, dividend policy, and multinationality: Theory versus empirical evidence

Raj Aggarwal and NyoNyo Aung Kyaw

International Review of Financial Analysis, 2010, vol. 19, issue 2, 140-150

Abstract: Textbook theory posits that multinational firms are large and diversified and should have higher debt capacity. In contrast, debt capacity of such firms can be expected to be lower because of the additional risks of foreign operations. This puzzle is unresolved by the empirical literature. Also, prior studies of multinational firms have not examined the relationship between debt and dividend payout ratios that can be expected in theory (both help manage agency costs). Accounting for this interdependence and controlling for appropriate other variables, this study documents that compared to domestic companies, multinational companies have significantly lower debt ratios with such debt ratios decreasing with increasing multinationality.

Keywords: Multinational; companies; Dividend; policy; Capital; structure; Multinationality; Debt; Endogeniety; Simultaneous; equations (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:19:y:2010:i:2:p:140-150

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