EconPapers    
Economics at your fingertips  
 

Who is Afraid of Political Risk? Multinational Firms and their Choice of Capital Structure

Iris Kesternich () and Monika Schnitzer ()

No 6468, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, corruption and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share always decreases, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.

Keywords: capital structure; leverage; Multinational firms; ownership structure; political risk (search for similar items in EconPapers)
JEL-codes: F21 F23 G32 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-cfn and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6468 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Who is afraid of political risk? Multinational firms and their choice of capital structure (2010) Downloads
Working Paper: Who is afraid of political risk? Multinational firms and their choice of capital structure (2010)
Working Paper: Who is afraid of political risk? Multinational firms and their choice of capital structure (2009) Downloads
Working Paper: Who is Afraid of Political Risk? Multinational Firms and their Choice of Capital Structure (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6468

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=6468

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-03-26
Handle: RePEc:cpr:ceprdp:6468