Multinational Affiliates and Local Financial Markets

Selin Sayek, Alexander Lehmann and Hyoung Kang

No 2004/107, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; debt; market; parent company; Multinational companies; financial development; capital structure; parent-company debt; equity ratio; exchange rate variability; FDI finance; debt to asset ratio; parent debt; cross-border FDI debt; financial leverage; Exchange rates; Currencies; Financial sector development; Foreign direct investment; Financial statements (search for similar items in EconPapers)
Pages: 26
Date: 2004-06-01
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Citations: View citations in EconPapers (16)

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