Multinational Affiliates and Local Financial Markets

Selin Sayek (), Hyoung Goo Kang and Alexander Lehmann

No 04/107, 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: Foreign investment; United States; Debt refinancing; Domestic debt; Capital markets; International financial system; Data analysis; Tax rates; Exchange rate variability (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
Date: 2004-07-13
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